Forecasting the market with the overbought/oversold indicator by Steven B. Achelis
The terms "overbought" and "oversold" are often used to discuss market conditions. However, as
anyone who has placed a short trade simply on the basis that the market is overbought knows, the market
can remain overbought for long periods of time.
There are a number of indicators which can be used to quantify overbought/oversold (OB/OS) conditions.
Most methods deal with internal momentum as measured by changes in price. Popular price OB/OS
indicators include the rate-of-change of prices (expressed in either points or percentages) and the
difference between two moving averages (often referred to as MACD).