On the trade front, we have heard many times overbought and oversold. We heard an analyst with the statement, AUD / USD is overbought and a correction or the U.S. dollar / Canadian dollar is oversold and a rebound. But what does this mean?

Term is used to describe a market situation, some technical indicators to quantify. These indicators are called the random index and RSI are the two most typical examples of the oscillator. Oscillator is a momentum indicator used to measure the current price of the currency than the price of its history at a given time. It seems to judge the measure in which a currency is overbought or oversold level of force and the kinetic energy of the currency pairs. For these two indicators of the scale of 0 to 100. When the value of 80 random index, the market is considered overbought, while the value of 20 random index, the market is considered oversold. RSI using the same scale from 0 to 100, but overbought value is 70, while the value of 30 oversold. The idea is when the market increased opportunities to meet or extreme reversal of fortunes. However, the reverse is not imminent. Market, a strong upward trend can be maintained for a considerable period of time, the market decline is a strong overbought oversold can keep for a long period of time. That is why these oscillators in the limited market value trends. However, when the market is in decline, rose to an overbought oscillator, there is a better chance of reversal. On the other side, when the market is on an upward trend, moving down the oversold oscillator, but also a good opportunity for reversal. The following is an example of using the AUD / USD Daily Chart. Also drawn on the chart is the slow stochastics value of the use of 25,5,5.

You can see an upward trend in the market is that in the random index will spend overbought, oversold condition in very little time more time. In addition, when an oversold stochastics moving down the state, the market does reverse the trend. But the key here is that the rising trend of the market. If the market's decline has been, on the contrary would be true.