This site is not about recommendations, there are already far too many. Just the opposite, this site is designed to encourage others to develop their own systems that will help oneself formulate their own decisions. "Know your enemy and win half your battles, know yourself and win half your battles, know enemy and yourself and win all our battles." Sin Tzu. You cant master the market without mastering yourself. Developing your own method will help you sharpen your most valuable tool, self. So put away the fear, dust off that spreadsheet program that came with your computer and begin your survey.
Often times you may hear somebody recommend a sell or short sell of a stock or index because the stochastics are approaching overbought. Often those premature short sale is what catapults the market in to overbought territory. It could be used as an example of fear over riding the your ability to follow the trend.
In the book Trading for a Living Dr Alexander Elder (website) there is a simple strategy of placing a buy as the market is approaching overbought. Contrary to most peoples thoughts it seems to be true that a market approaching overbought is often a good to buy. In a short study of the market for the last 2 years, if one was to place a buy 2 days before the fast stochastic line crossed over in to overbought territory and held 2 days after the slow line crossed into overbought, it would have been a very profitable strategy even in a market that is very bearish during this time frame, 606 points which would be pretty good money trading S&P eminis futures, 1 contract alone would represent $30,300. Of course this is hind sight and wouldn't expect myself or others to do as well as the study.
Even if one dose not employ the strategy of placing a buy as the market is approaching overbought, it should be noticed that stochastics approaching overbought should not be reason enough to sell. Always be sure to confirm, check the weekly charts along with other indicators. Often times it will take low volume, low cpc or maybe low trin numbers before the market becomes truly overbought.
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