It's interesting to add a few examples about how the market plays.
Gold August 2007, Daily RSI overbought, price 686.
Gold November 2007, Daily RSI STILL overbought, price 839.
Gold January 2008, Daily RSI overbought, price 900.
Gold March 2008, Daily RSI STILL overbought, price 1000.
By entering short when Gold was OB we could say Market is trading against me because we where screwed time after time.
What about Oil today?
Hell with it. Go long and see what's happen. Why?
Because 2/3 time per day we hear analysts pointing to $200 and this is creating a wave of emotions pulling up the price. Just be careful when you hear "seems there is no limits for the uptrend" or "seems Euro is going to the moon". After some comments like that DJIA falls 14000 ticks and EURO 600 pips.
Cause: Emotions
However, our hope is Economy rules are more powerful than emotions. Because this rules are long term based meanwhile emotions does not live so much.
Remember Charles Dow?
I would like to quote what A Elder says about his Force Index:
Quote:
Trading Psychology
When the market closes higher, it shows that bulls won the day's battle, and when it closes lower, it shows that bears carried the day. The distance between today's and yesterday's closing prices reflects the margin of victory by bulls or bears. The greater this distance, the more important the victory...
...Prices reflect what market participants think, while volume reflects their feelings. Force Index combines price and volume- it shows whether the head and the heart of the market are in gear with each other.
When Force Index rallies to a new high, it shows that the force of bulls is high and the uptrend is likely to continue. When Force Index falls to a new low, it shows that the force of bears is big and the downtrend is likely to persist.
If the change in prices is not confirmed by volume, Force Index flattens out and warns that a trend is about to reverse. It also flattens out and warns that a trend reversal is near if high volume generates only a small price move.
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