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Percent Oversold to Overbought Stocks - Market Breadh Indicator
A stock is said to be overbought if it moved up too far and oversold if it moved down too far.
When the stock or market is overbought, the technical analyst and trader will likely sell its position(s) and if the stock or market is oversold, he/she will likely buy a new position(s).
Overbought and oversold stocks can be measured by many indicators. Each one will have its own interpretation and its own overbought and oversold levels. The most popular technical analysis indicator that measures the overbought and oversold levels is the RSI or the Relative Strength Index. Traders usually consider that are stock is oversold if its relative strength index value falls below 30 and is overbought if its relative strength index value rises above 70.
This is the interpretation of the majority of traders; many other traders use the RSI as a contrarian indicator and therefore have another view of the overbought/oversold levels.
The Percent overbought to oversold Market Breadth Indicator calculates the number of stocks that are oversold (Stocks whose share price is lower than 30) and divides the result by the number of stocks that are overbought (Stocks whose share price is higher than 70). The 70/30 threshold levels can be easily updated and several variations of this market breadth indicator can be created just by modifying these overbought/oversold thresholds.
The higher the percent of overbought to oversold stocks indicator value is the more stocks are currently oversold compared to overbought stocks. This is can be interpreted as a bullish signal by many traders, and a bearish signal by contrarian traders.
The ticker symbol of this Composite/Market Breadth Indicator is "RSI_70-30".
Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
