ST:
According to my understanding of this thread, the summary is like this:
1. If the oscillator stays for more than 5 bars in OB or OS, then the trend is strong and the scrip is likely to be bullish (if in OB zone) or bearish (if in OS zone).
2. If the oscillator enters OB or OS zone, stays for a while (not for more than 5 bars), and then comes out of that zone - then there are 6 qualifiers to enter into a trade.
I hope I am correct till now.
Are these two concepts inter-related?
(If so, scrip staying in OB/OS > 5 bars and then going to the opposite zone should be considered as a pullback?)
Or, they have to be treated as separate cases?
(If so, the status of Bullish/Berish basing on OB/OS>5 bars status gets cancelled once the oscillator reaches the opposite zone.)
Thanks ST for your patience and also for your readiness to help!
murthyavr,
Points 1 and 2 are correct.
When oscillator stays in overbought region for 5 bars or more, it is called excessive overbought phase and it needs time to dissipate the energy.So when after 5 bars, it comes out of the OB zone, it is not a low risk sell entry, the market may make another 2-3 bars is correction and make a new high and we try to buy this correction instead of selling.
But when market stays in overbought region for very long time say for 8-9 bars or more, the buying force fizzles out...hence it is not a good idea to buy after 8-9 bars as market cannot continue its upward march indefinately.
After say 5 bars in the OB region market comes out of it, we consider it as a correction only if it does not go into oversold region.Because if our assumption is that market is excessively bullish, it should make a shallow 2-3 bars correction and go to the new top. Instead if it takes a very deep correction and goes into an opposite oversold zone, then the bullish assumption gets nullified.
I have tried to give the thought behind all the actions ...hope it helps in understanding the OB/OS phenomenon correctly.
Smart_trade