# Let’s understanding the words Overbought, Oversold, Convergence and Divergence for basic indicator readings. That traders should know about buy signals, sell signals in uptrends and downtrends

Let’s understanding the words Overbought, Oversold, Convergence and Divergence for basic indicator readings. That traders should know about buy signals, sell signals in uptrends and downtrends
12/24/2022

Later technical analysis is the introduction of techniques Statistics and Mathematics Let's apply more. These have become indicators of stock prices in many different forms, here we will talk about some of them. For those interested in Other indices besides those mentioned here can read more because most of them use similar concepts

In using technical tools to analyze stocks The part that we often hear or use often is Oscillator, which measures this oscillation. There are many of them that we are familiar with, such as RSI and Stochastic, for example, which can be used as indicators of the market direction in the short to medium term as well. Especially during the time when the market moves without direction. Ways, also known as sideways, or fluctuations within a narrow band, because during these times, oscillators are able to stick to prices more closely than other instruments. Allowing traders to use it as a buying tool Short-term sale, fast-in, fast-out Even in market conditions that are not clearly uptrending or downtrending, and even when the market is trending, oscillators can help determine if the trend will continue to strengthen. Is about to weaken already as well.

Introduction to Overbought, Oversold, Convergence, and Divergence

Most indicators are derivatives. Derivatives, which are used to measure price changes. A simple metaphor is like if We compare the price to the speed of the car. Indicators are the same as the acceleration of the car if we press the accelerator (or deceleration if we press the brakes), which gives another perspective. If we accelerate the accelerator The higher the acceleration, the faster the car will go. In this case, we will see that acceleration and top speed go up simultaneously.

Now, if we withdraw the accelerator We will find that the car is still moving forward by inertia, but the acceleration is zero. When we start to tap the brake lightly The car was still moving forward. But the braking force gradually pulls the car to slow down. In this case, the acceleration is negative. (Because we've applied the brakes), but the car can still run a little further forward. Before coming to a complete stop. In this case, acceleration versus velocity will go in different directions Because the car can still run forward. But negative acceleration (Become a delay) already.

Same stock price Sometimes we may see that the price is still up. But the truth is that the market lacks momentum. (Which is the acceleration) and this is what we call the market is overbought because you turn to ask other traders. Found that they were bought together And almost everyone, everyone has stocks in their hands. People who buy more have a few more. And those who still have it still keep it and don't rush to sell. But there are fewer people wanting to buy. On the other hand, during the market crash, everyone flocked to sell. (Afraid of losing each other) The price will fall very quickly because there is a strong selling force. But when sold to a certain point Sales force began to shrink. They're all sold here. (It's almost out of stock.) Even though the price is still going down, you'll notice that the selling pressure has shrunk a lot. This is called oversold.

Indicators are also attempts to measure buying or selling pressure. Which determines the direction of the price again Therefore, during The market is accelerating, the indicators will move in the same direction as the price. (It's like we press the accelerator harder and the car runs faster), which is called Convergence, but when the market starts to run out of acceleration. (Like we withdrew the accelerator), although the price is still Running in the same direction, but some Indicators will start running in a different direction from the price. This is what we call Divergence as a warning signal that The market is starting to run out. Be careful. Because there is no other support to support the market, the direction may reverse (Reversal) soon.

Some traders play very fast. Therefore, other technical principles have been applied to the Indicator because it gives quick and good signals, such as using Trend line charting techniques or finding the Moving Average of the Indicator as a trading signal. Which is not wrong. Give good signal But the best way is to gradually start buying or selling little by little. When there is a signal In addition to using other technical tools with the Indicator and gradually buying or selling until the real signal is found (the real thing is real, but it may be a little slow), but some traders are a little overrated, just the Indicator turning its head a bit. Buy and sell This is still a little too much.

1. If the indicator climbs to the upper or lower band of the indicator, known as Overbought and Oversold, it shows that the stock is overbought. Overbought or oversold

2. If the indicator and the price move in a divergent direction, this is usually an important warning that the price may A reversal will follow, an important signal will be generated when the oscillator is in the OB/OS zone.

3. For some indicators, the indicator's crossing up or down through the zero line is a signal to buy or sell according to the trend.

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