Mr. Anonymous said...
Hello Sanjoy! When your trading software gives a buy on a trending stock don't you use stochastics or RSI to see if the stock is overbought before buying. The same goes for selling short,to see if the stock is oversold. THANKS!
Monday, May 01, 2006 8:54:39 PM
Dear Sir/Madam,
Let me quote from Dr. Alexandar Elder's book "Trading for a Living" :
The over bought and over sold signals tend to work well during flat trading ranges. They become pre-mature and dangerous when the market enters a trend. RSI or Stochastics can stay near the top for a week or longer during a strong rally.
For using DreamTai, I always recommend to look at trending stocks, not stocks that are in a flat range.
For example, look at stock WMG given in the previous article. It has been trending upwards steadily. It has been recommended before also.
In such cases, RSI can be overbought for a long time.
