#### Topic: how to you deal with overbought / oversold

Hoping someone might help me with this.

When I trade manually I like to wait for a market to enter an oversold position before looking to enter long based on other indicators (similar overbought and short).

I am wondering if it is possible to achieve this in an automated strategy (that can be subsequently back-tested) where the crossing of the overbought or oversold level line may occur 1, 2, 3, more bars before the other entry conditions are satisfied.

In essence it is likely that the entry requirement is 2 stages, the indicator crosses the level line upwards, and only if this occurs, enter based on the strategy opening logic conditions as usual

could be using any number of indicators RSI, MFI, stochastic

assume the principal would be the same

my concern is that my entry conditions are likely not to occur in the same bar, but successive bars

#### Re: how to you deal with overbought / oversold

The first thing I can think of is using "Higher/lower level" logic, for instance you set Stoch as lower than level of 20, so long signals are taken when Stoch is oversold.

#### Re: how to you deal with overbought / oversold

you might like to check out using oscillator such as stoch of different lengths  ie 7,3,3  14,6,6 or varying the parameters of two or more so that you can observe the OS/OB

#### Re: how to you deal with overbought / oversold

I know what you mean -- the signal occurs at first entering the overbought state, before the price loses momentum. Or the signal occurs when the overbought state is like 99 bars old, and just about to go back to the regular state, which is too late.

Maybe this will work:
Make a customized version of your preferred indicator. In the customized version, keep a variable to use as a counter (eg, int iCounter=0, in Calculate(), created just before the main for loop). In the for loop, where you get the indicator value for that iBar, add code to figure if it has crossed the level line upwards, and start the counter. Then, reset the counter when another condition is met (eg, crosses the level line downwards, or increases beyond a pre-set limit). Next add parameters for minimum and maximum count values. In between those values, the signal array gets a 1 to allow long entry, or short entry.

This way, you can set that entry is not allowed until a certain number of bars after crossing into the overbought or oversold state, but not allowed after having been in the overbought or oversold state for too long.

#### Re: how to you deal with overbought / oversold

Thank you all, I will explore these suggestions and report useful outcomes back through the thread.

#### Re: how to you deal with overbought / oversold

dave88 wrote:

Thank you all, I will explore these suggestions and report useful outcomes back through the thread.

I am interested in this form of trading, but it has been a while since the last post and I would be very interested as to the out come of this system..

cheers...