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The Concept of Overbought and Oversold

  • PE (Price / Earning ratio): reasonable if 10 ≤ x ≤ 25. overpriced if x > 25

  • Index: bullish if 50 ≤ x ≤ 70, bearish if 30 ≤ x ≤ 50

  • Momentum is a lagging indicator

Moving Averages

  • MA is a lagging indicator

  • The convergence and crossover of two MAs adds value and create confirmation value when compared to momentum trends

  • The best MA: 50 days and 200 days


  • MAs cross one another as a factor of price change.

  • Significance: momentum of change (convergence), proximity to resistance or support, and proximity of MA to current price

  • Most reversal activity takes place at or near resistance or support

  • MA is a lagging indicator but together with price above or below Bollinger Bands it can predict the price movement

RSI: Relative Strength Index

  • the least complex and easiest to interpret

  • an excellent system for timing or reversal

  • Usually remain 30 ≤ x ≤ 70 range