[Education] Sorry guys I've been meaning to update this but just haven't really been feeling it. I know, not a very good excuse. Anyways, I'll go into a little more detail on the different factors. There isn't much of a hierarchy of importance, with the lone exception of price/level. Everything should start and end from a price or level, then use the indicators in conjunction with each other to look for confluences. Today we will start with Condition, just so we know what we are looking at on the charts. We use the Bollinger Bands in conjunction with Stochastics to define "overbought" and "oversold". It is defined more specifically in my quote above. Merely defining it doesn't do us much good. It is WHEN to look at/trade off of these conditions that gives us an edge. If you use them 100% of the time, the end result will not be profitable. To determine when to use OB/OS conditions, you must first determine what type of market we are trading in. Trending or oscillating. In a trending market, OB/OS is useless. An overbought condition can remain overbought for weeks, riding the upper bollinger band all the way up until you are stopped out time and again. Vice versa for oversold. In a oscillating market, OB/OS conditions as defined above will not only keep you out of trouble, it will provide optimum entry points when we are also at a price/level. Here are some recent examples of different types of markets in the past year or so: Obviously it is not as simple as that. We can clearly identify when the market is trending and oscillating after the fact. The hard part is determining it in real time. Here is another closer look at this week's NQ trading on a 45 minute chart. Shorting whenever an overbought condition was signaled worked out very well for day traders. Notice this pattern finally collapsed on 11/18 when we broke through, and the market became trending. Don't worry about trading off of OB/OS yet, as it is just one tool out of our tool box. Once we update the other factors(hopefully soon), this will just be the starting point in evaluating a trade. Not a stand alone signal. Next up will be the all important Price.
