Scalping Extreme Overbought / Oversold Areas ?

[brakkar 10]

Hi,

I'm looking for ideas of indicator / method / ideas for spotting extreme overbought oversold level, to act on these area and play counter trend.

 

Thus far I retained 2 good ones:

 

- Kelter channels when prices goes out of it

- Current price distance from Moving average

 

Any better ideas ?

[jpennybags 11]

  brakkar said:

Hi,

I'm looking for ideas of indicator / method / ideas for spotting extreme overbought oversold level, to act on these area and play counter trend.

 

Thus far I retained 2 good ones:

 

- Kelter channels when prices goes out of it

- Current price distance from Moving average

 

Any better ideas ?

 

Counter trend trading can be a difficult road to take. Price action will always try to revert during a trend, but these moves most commonly fail... until they don't. The moves are almost always short lived... until they aren't. In my opinion, it's always best to trade with the prevailing trend, then wait for price action to signal that the trend has changed before taking a trade... always trading with trend.

 

I use a Chande Momentum Oscillator with a 5R chart. It seems to be a good cautionary indicator for when the move is losing momentum. That said, the market is never truly overbought or oversold... any indicator that you use must be taken into context of current price action.

[MidKnight 12]

Yes, I have some other ideas but it probably depends on your market. If your question is towards a stock index, then I'd strongly suggest adding some breadth: tick, vix, prem, custom breadths are some examples that are worthy of exploration.

 

I think JPennyBags comments really depends on the market one is trading and I personally hate the advice of only trading with the trend as it is too vague and general a comment that does not transfer well to all markets or timeframes that the trader may be trading. Over my early couple years I subscribed heavily to "trade with the trend" and it did more harm than good for me. It wasn't until the subprime high volatility era and my switch to fading extremes that I started to actually turn consistently profitable. Now I don't trade like that much anymore today, but my point is just that conventional "wisdom" may not be so wise for you, in your market, and in your timeframe.

 

If your study shows conter-trend scalping from extremes is good, then by all means do it. I can scalp very well fading extremes WHEN volatility is high on the Hang Seng Futures, but if volatility is low I get destroyed. That is my own short coming and your mileage on your timeframe and in your market may vary. Do the study. It takes time so be patient.

 

With kind regards,

MK

[jpennybags 11]

  MidKnight said:

I think JPennyBags comments really depends on the market one is trading and I personally hate the advice of only trading with the trend as it is too vague and general a comment that does not transfer well to all markets or timeframes that the trader may be trading.

MK

 

Can't disagree with that. I take counter trend trades every day, but my bias is with the trend. I will bail on a counter trend trade in the blink of an eye... show me a single doji bar and I'm gone. I think in a general sense trading with the trend is good advice... even from a scalpers perspective. I'd rather sell the top of a Keltner band in a downturn, than buy the bottom of the band. It just seems that the odds stack up better.

 

I would also add as an addendum... the reason I take counter trend trades is sometimes I'm feeling it. Don't know... not opposed to it... just don't make a living of it.

Edited February 17, 2014 by jpennybags

[jpennybags 11]

  brakkar said:

Hi,

I'm looking for ideas of indicator / method / ideas for spotting extreme overbought oversold level, to act on these area and play counter trend.

 

Thus far I retained 2 good ones:

 

- Kelter channels when prices goes out of it

- Current price distance from Moving average

 

Any better ideas ?

 

If your trading platform supports it, pull up a tick or volume chart and observe how price action supports (or doesn't support) a countertrend trade. Counter trend trades can make for a good day in the aggregate, but it's not something that I would use as a "bread and butter" trading method. Trading counter trend is a riskier trade, and Keltner bands are kind of a "blind faith" way of trading (with nothing else to support it).

[prax 10]

  brakkar said:

Hi,

I'm looking for ideas of indicator / method / ideas for spotting extreme overbought oversold level, to act on these area and play counter trend.

 

Thus far I retained 2 good ones:

 

- Kelter channels when prices goes out of it

- Current price distance from Moving average

 

Any better ideas ?

 

when you said at extreme level, and willing to use for scalping method. it's kinda bit controversy. overprice level best at higher time frame, it's quite dangerous if we put a reverse order, a whipsaw oftenly happen.