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| A finite number of buyers and sellers trade each stock at any point in time. Rallies and corrections feed on this supply until it dissipates. The stronger the rally or the weaker the correction, the more quickly that a stock will reach the bottom of its fuel supply. A classic overbought-oversold measurement, such as this 14-period Wilder's RSI (Relative Strength Index), tracks buying and selling pressure and tends to reverse sharply when it strikes extreme levels. Place a daily RSI indicator in the lower pane to follow this underlying buy-sell cycle. Place 30-70 levels in weak to moderate markets to signal extreme readings but expand them to 20-80 in strongly trending markets. |
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