Overbought & Oversold Forex Strategy

The overbought & oversold Forex strategy is a good trading strategy based on extreme price conditions.

Having a good understanding of how overbought and oversold oscillators work and carrying out a deep market research is an important step towards accepting this strategy.

If you look at the indicators deployed for this strategy, they were closely selected to make your job of technical analysis quite easy.

In all of this you can quickly tell when to buy or sell.

The simple concept to remember here is that the price of a currency is unable to continue to go in one direction endlessly.

It gets to a point where price must certainly alter course, and this is what we seek to determine.

Chart Setup

MetaTrader 4 Indicators: Moving Average.ex4 (Parameters Modified; Period=28, Style=Yellow), rsi_ma_trade_sist_chart.ex4 (Inputs Variable Modified; FastEMA=10, SlowEMA=24, RSIPeriod=42, Alerts=false, Colors Modified; #1=None, #2=None, #3=None, #4=None, Colors Width Modified; #0=2), RSItv.ex4 (Inputs Variable Modified; Sound=false)

Preferred Time Frame(s): 1-Minute, 5-Minute, 15-Minute, 30-Minute, 1-Hour, 4-Hour, 1-Day, 1-Week, 1-Month

Recommended Trading Sessions: Any

Currency Pairs: Any pair

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Buy Trade Example: AUD/USD (Australian Dollar / US Dollar), H1 Chart

Fig. 1.0

Strategy

Long Entry Rules

Initiate a buy entry if the following indicator or chart pattern gets put on display:

  • If the yellow line of the 28 SMA Metatrader 4 forex indicator crosses below the blue rsi_ma_trade_sist_chart indicator line in a bottom up manner (see Fig. 1.0), price is said to be pushed to the upside, as such a buy alert is said to be looming.
  • If the line of the RSItv custom indicator turns lime while breaking above the 50.00 reference level as shown on Fig. 1.0, the dominant market force is said to be bullish, thus a signal to go long on the designated forex pair.

Stop Loss for Buy Entry: Place stop loss 3 pips below previous swing low support.

Exit Strategy/Take Profit for Buy Entry

Exit or take profit if the following rules or conditions takes precedence:

  • If the yellow 28 SMA indicator line intersects the blue rsi_ma_trade_sist_chart indicator line during the course of a bullish trend, it is signaling the likely end to bullish pressures, as such an exit or take profit stance is recommended.
  • If the line color of the RSItv indicator reverts to red during the course of a bullish trend (refer to Fig. 1.0), bulls power is said to be weaning, therefore an exit or take profit stance is said to be rightly advised. .

Sell Entry Rules

Enter a sell order if the following holds true:

  • If the yellow line of the 28 SMA forex indicator crosses above the blue rsi_ma_trade_sist_chart indicator line in a top downward fashion as exemplified on Fig. 1.1, price is said to be dragged lower, thus a trigger to go short on the selected currency pair.
  • If the line of the RSItv custom indicator turns red while dipping below the 50.00 reference level as seen on Fig. 1.1, the leading market force is said to be bearish, as such a sell trigger will do.

Stop Loss for Sell Entry: Place stop loss 3 pips above previous swing high resistance.

Exit Strategy/Take Profit for Sell Entry

Exit or take profit if the following takes center stage:

  • If the yellow 28 SMA indicator line intersects the blue rsi_ma_trade_sist_chart indicator line while a bearish trend is ongoing, it is pointing to a likely bullish reversal, hence an exit or take profit stance is duly advised.
  • If the line color of the RSItv indictor reverts to lime while a bearish trend is running (check Fig. 1.1), bears power is said to be halting, therefore an exit or take profit stance is apt.

Sell Trade Example: AUD/USD (Australian Dollar / US Dollar), H1 Chart

Fig. 1.1

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About The Forex Technical Indicators Used

The 28 (Simple Moving Average) is a technical analysis indicator that smooths out price data by constantly creating an updated average price over 28 periods.

The rsi_ma_trade_sist_chart custom indicator is comprised of the EMA and RSI indicator, thus transforming it into a very powerful trend tool.

The RSItv is a smoothed Relative Strength Index indicator designed for the MT4 platform.

It produces a sound alert when the 50.00 signal level is crossed (upward or downward).

Easy Installation

Start using this forex strategy in just 5 minutes. Click here to get started now.

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