Oversold / Overbought (SC/BC)

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 Oversold / Overbought (SC/BC)

The terms "oversold" and "overbought" are concepts often used in technical analysis to assess the
potential direction of an instruments price movement. They are based on the idea that the
instruments price may deviate from its true value, and these conditions may indicate a potential
reversal in the trend.

You may have heard of RSI (relative strength index), which is an indicator thats is frowned upon by
equally unprofitable traders that think they know better. I dont use the indicator either, but in sorta
the same way, I interpret swings by observing their structure and movement. RSI and this concept
sorta go hand in hand.
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What is an overtraded swing?

OVERBOUGHT
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When the instrument is considered overbought, it means that its price has risen sharply and quickly,
leading to the belief it may be overvalued. This also applies to swings which has low volume price
action, but a fair amount of bullish candles outnumbering bearish candles.
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 OVERSOLD

When the instrument is considered oversold, it means that its price has fallen sharply and quickly,
leading to the belief it may be undervalued. This also applies to swings which has low volume price
action, but a fair amount of bearish candles outnumbering bullish candles.
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Criterias
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An overtraded swing has a few criterias which we can use in order to validify them in our technical
analysis;
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1. One sided price action, candle ratio should be AT LEAST be 2:1, but the higher the ratio the
better.
2. Retail overtraded swings tend to have the characteristics of little to no imbalances, wicks and
small candle bodies. Tend to be liquidated in the immediate future. Typical swings like this
happen intraday on the lower timeframes, or in sessions which are not optimal for the pair you
trade (for example Asia session, US100)
3. Institutional overtraded swings tend to have the characteristics of imbalances, gaps, and a
large candle bodies. Start of swing tends to remain non-liquidated for longer than retail swings.
This can for example be news events that has played out.