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OverSold/Overbought area based on book Trading for Living


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OverSold/Overbought area based on book Trading for Living

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  #1 (permalink)
Indonesia
 
 
Posts: 8 since Dec 2013
Thanks: 3 given, 1 received

Hi,

I just read book Trading for living from dr. Alexander Elder. and in this book said that overbought and oversold area of oscillator indicator such as RSI, Stochastic are not static. in this book said like this :

"The proper way to draw those lines (Oversold / Overbought) is to place them so that an oscillator spends only about 5 percent of its time beyond each line."

How can I make an indicator lets assume RSI(13) but the oversold and overbought area is 5% of its time at high and low for the last 6 month.


thanks and sory for my bad english.

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  #2 (permalink)
Market Wizard
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a121e View Post
Hi,

I just read book Trading for living from dr. Alexander Elder. and in this book said that overbought and oversold area of oscillator indicator such as RSI, Stochastic are not static. in this book said like this :

"The proper way to draw those lines (Oversold / Overbought) is to place them so that an oscillator spends only about 5 percent of its time beyond each line."

How can I make an indicator lets assume RSI(13) but the oversold and overbought area is 5% of its time at high and low for the last 6 month.


thanks and sory for my bad english.


You could calculate the z-score of the RSI and then add overbought and oversold lines for the values +2 and -2.

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  #3 (permalink)
Sweden
 
Experience: Intermediate
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Posts: 48 since Jun 2009
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You have formula for RSI Z-score on this link
TrendXplorer: Providing a statistical framework for DMI, MACD and RSI

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  #4 (permalink)
Indonesia
 
 
Posts: 8 since Dec 2013
Thanks: 3 given, 1 received

Thanks Fat Tails and Platon, I can make that area now. Problem Solved

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