"Sell overbought, Buy when oversold", the greatest misconception in forex trading

[Nader Moustafa]

Dear All,

"Sell overbought, Buy when oversold", you probably read a similar phrase online or in a .pdf
And also, you probably found yourrself wondering over and over again why and how did it go up, it was already overbought or how come I get stopped on a long position it was already 'heavily' oversold....

In fact it is surprising how widely spread is this approach to interpreting the stochastics oscillator,if you look at the attached images you'll notice a very important fact, that the 'real - deal' moves happen ONLY when prices are on an extreme stochs. condition.

If you back test for this phenomenon you'll find this on almost all time frames on any currency,Actually selling 'after' moving from OB is a good idea,but before that you might be just selling in extreme bullishness.

I attached a pdf written by 'George Lane',the guy who invented the stochastics that after I read the doc. thoroughly, I changed a lot of my thoughts regarding the interpretation of stochs. (like this aforementioned part and others)

Please make sure you read 'into' the document ,and feel free to ask any questions or open a discussion about it.

[SaM5246]

Interesting thought Nader, and thanks for posting the pdf guide. As always no one should base their trade on one indicator alone. To make consistently in FX is very similar to the stock market:


Basically follow the "Smart Money". Now I can't tell you which investment banks, hedge funds, or high net worth individuals are buying/selling which currency so we have to follow the trend.

Like Johan says, trade in the direction of the highest probability. So even if you find that you got a bad entry into the market probability is on your side.


See you in the room,


Sameer