Overbought/Oversold Indicator

The Over bought/Oversold Indicator consists of an Exponential Moving Average of the daily market breadth.The Overbought/Oversold market breadth  indicator is typically used as an oscillator.

Overbought/Oversold Indicator

The Overbought/Oversold Indicator consists of an Exponential Moving Average of the daily market breadth.

 


Overbought/Oversold Indicator Calculation

     Overbought/Oversold Indicator = EMA(#Advances - #Declines)

          where:

  • EMA is the Exponential Moving Average
  • #Advances is number of advancing stocks
  • #Declines is number of declining stocks
Plot of Overbought/Oversold Indicator


Application of Overbought/Oversold Indicator

The Overbought/Oversold market breadth  indicator shows the market as being overbought at +200 or greater and oversold at -200 or less. Note that this indicator is not particularly good at predicting when the trend will change.

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