Overbought Price Action | Podcast Episode #309

0:07
Hey, I’m Ryan Mallory and this is my swing trading the stock market podcast. I’m here to teach you how to trade in a complex ever-changing, world of Finance, learn what it means to trade, profitably and consistently managing risk, avoiding the pitfalls of trading. And most importantly, to let those winners run wild, you can succeed at the stock market and I’m ready to show you how, hey everybody this is Ryan Mallory with Swing Trading the Stock Market.

0:33
And in today’s episode, which Which promises to be a good on? I’m pretty sure it’s going to be a good one. At least we’re going to talk about oversold or overbought Price action, man. What do I use to determine when the market is overbought or oversold? You’re going to find that. It’s a myriad of things actually and how do I determine it just by looking at price and volume?

0:50
We’re gonna get to that here and and this episode’s email comes from a guy. He wants to be called Bo teeth. We’re going to give them a good Florida, red nickname since we don’t want to give away people’s personal identity and booty. Freights. Hey Ryan. I’m listening to all your podcast for a second time, which Quite amazing. Honestly, you have helped me so much as a traitor, I can’t even. Thank you enough. From? What I’ve gathered, a big influence on Market, direction is overbought and oversold indicators. I know you can use the RSI and T 2108 to do that, but you also talk about simply using price and volume to analyze overbought and oversold conditions over the all the episodes that you’ve done.

1:24
I’ve never actually heard you explain how to do this, would you mind explaining it a little sincerely Botti. All right, booty gonna do that. And for today’s episode, I’m drinking some beer. Bourbon that is called actually. It’s just whisk it’s not bourbon. It’s called Alamo Black Label list.

1:40
It’s 45% alcohol, 90 Proof, never had it before, we’ll see how it goes, but the end of the episode, I’ll let you know, my thoughts on it as a whole. Okay, so getting back to boutiques email, I do use oversold, or overbought indicators all the time. I look at them.

1:55
Each day, pretty much for any stock that I’m looking to trade the market conditions, Etc. But I don’t base my trading decision entirely on them. I really look for it. Dreamz. Now, stochastics when it comes to them. For instance, I use a setting of 12, 35, you don’t know what that is.

2:11
It’s not really a big deal, but if you know, stochastics are, you would you’ll know those settings. It’s the standard settings, but it’s kind of a fast stochastics as well. It gives me a very good idea in the short term, if I’m getting into a stock. Am I getting in? When price is getting a little bit pushed too far too fast, too soon.

2:27
Like, for instance, right now, as I’m doing this podcast, the market has rallied over the last six days over 5%. I’m talking about the S&P 500, I think the nasdaq’s. Maybe up as much as 8% and that’s a lot for that period of time. And if you’re looking at this kind of sticks, you’re looking at readings of like, 98 and 99.

2:44
Those are readings where? Okay, maybe a time where you don’t necessarily want to go bet the farm on a particular trade, doesn’t mean that you can’t make a trade. But when you couple that with the S&P 500 trading, right below a key resistance level, that’s the kind of like multi-level thinking that I want you to do, is Traders to be looking at, okay, we’re overbought.

3:03
We’re also sitting on or just below. Key resistance level, is that really the time that I want to be buying? Or should I wait for some consolidation of it? Take some time to break through it, then that will also work off some of those overbought conditions. And then when it does break through it, I can pounce on that break out. And in the meantime, I avoided the potential for a much deeper or a.

3:22
Maybe you’ve even a reversal in the market or in a particular trade by not having to be in that period where the stock was consolidating or simply trading sideways for a little bit of period of time before it did break out because not all Consolidation leads to a break higher, not all bullish, patterns lead to a breakout.

3:39
Sometimes they don’t do what you expect them to do and they reverse and they go down lower. That’s why it’s good not to get in. When the stock is just simply trading sideways because you don’t have those assurances that it’s actually going to try and break out. So using overbought oversold indicators in conjunction with like how the overall market price.

3:55
Action is how it’s working in relation to resistance or support is important. I also look at the fact that we had just mentioned, how the NASDAQ is rallied Percent over the last six days. It is managed rally six straight days and I can look at that.

4:11
Chart has a okay, probably six straight days on the NASDAQ and 8%. I can look at the chart and tell you that it’s well over 90 on the stochastics and that the price action is going to be getting extreme. Now remember, I’m using more of a short-term stochastics indicator. Does that mean it’s going to be over bought on the weekly chart?

4:28
No, in fact, it’s not all that surprising at times when a stock is overbought on the daily but still oversold on the weekly or overbought on the weekly and still oversold on the monthly and so what do you default to then? Well the longer the time frame, the better picture that you’re going to get on whether or not a market is overbought or oversold.

4:49
So what’s really good is when you can look at the daily, the monthly and the weekly, as well as maybe even the intra days and they’re all saying, okay, this Market screaming overbought, that’s it, easy analysis to do on in terms of what’s overbought was oversold, but when you start getting Mixed greetings, where the intraday let’s say is extremely overbought, let’s say it’s hitting like a stochastics of 98 or 99 but your daily is still maybe just coming out of oversold conditions.

5:17
Then what? Well you still gotta assume that the market has room to run because it’s much easier for the longer time frames to Trump the shorter time frames so than the daily because it still has room to run can keep dragging those intraday price levels higher and you can still have pull backs on the shorter time frames without Out really affecting the longer timeframe.

5:37
So on a daily, you can have a small pull back and that won’t necessarily hurt the weekly. In fact, you can still have a green candle, but let’s say you start the week off in the first three days of the week at the market. Pulls back that doesn’t necessarily guarantee that the weekly candles going to finish. Because if you have a strong Thursday and Friday or just even one day, possibly you can still finish screen on the week.

5:56
I’ve seen it so many times where you have first four days of the week or all down. You think this is going to be a bad week in the market and Friday, has some good news piece come out or a good economic report that Comes out and all of a sudden you’re back to green on the week.

6:14
That’s the one that I like the most I get it through, TC 2000, you can also create a lot of these indicators as well, but the t21 08. There’s also different versions of it. In terms of 50-day moving average, you can use the 200-day moving average 200 a lot more long-term and it’s you see it because it’s such a longer timeframe or such a bigger moving average.

6:31
You see far less movement and the overall end. Decatur the t21 away, the reason why I like that, it helps me to get a better feel for Major Market reversals. For instance, T 2108, it’s trading at 50% of stocks trading above the 40-day moving average.

6:48
That doesn’t really mean anything to me. But when it starts, let’s say the market gets all the way down to where only two or three percent of stocks or trading above their 40-day moving average. That’s an extreme reading that you really don’t see, maybe every couple of years and when you get those those are usually some really glaring signs at the markets about the reverse and even back. 20:22 we saw plenty of times I think two or three times in 2022 where we were getting into those single digits and we saw some major Market reversals happen as a result so you can be effective.

7:15
But you also want to think about how does this indicator, or how does this moving average or how does the T 2108 or the stochastics help you and your overall Pro to swing trading just because I use it doesn’t mean it’s going to work for everybody else.

7:31
I mean I’m on a bad patch of Whiskey’s and Bourbons right now. It’s just just not being good. Sailing for me of late Alamo is going to be a no-go for me. Anyways, without let me get too distracted on that. Remember these indicators, they don’t Trump price and volume, price, and volume is what’s going to drive much of my trading decisions.

7:50
And what I see out there, things like, stochastics, it’s nice to see, but it helps to provide a more complete picture on a particular stock. Do I need stochastics in order to be successful as a Trader. Now, if I had to remove one indicator off my screen, I probably would be stochastic. Don’t need overbought oversold.

8:06
Indicators in order to know a market is overbought or oversold. You can do that by just looking at the price action. Like, what I was saying earlier, you start seeing stocks that have moved, like 11 days in a row and there’s a lot of them right now that have done that, all right? Do I really want to be buying a stock? That’s already ran for 11 days to the upside without having even taken a moment to catch its breath?

8:25
No, I’m not taking that during no way. You’ll see me do that but Traders often times don’t even think about that. They’ll just say who cares if it’s about. I’m going to keep buying it and then all of a sudden that 20% Move has a 5% pullback. They didn’t get any of the twenty percent move, they just got all of the pullback. And now all of a sudden, they’re taking a five percent loss and it was an unnecessary loss.

8:42
And when that could have been easily avoided, something you don’t want to avoid. swingtradingthestockmarket.com. That is my Patron website that goes along with this podcast with it. You’re going to get all sorts of good content each and every day that’s going to include multiple videos.

8:59
You’re going to get my watch list each week. You’re also going to get different trade ideas that I come across. Each and every day, some really good stuff and you’re going to get updates on our big tech stocks as well. So check that out. Swing trading the stock market at Cam and you’re supporting this podcast and the process.

9:16
But as I said before, different time frames are important. When you’re looking at overbought oversold indicators it provides a layer effect to put this in the football terms and I oftentimes like to bring things back to football because I think it makes a little bit more sense when you, when you express it in football terms.

9:32
But anyways, I’m a big Miami Dolphins, fan. Yes, they just got knocked out of the playoffs and that was very sad but one of the things that made them very successful this season especially with their quarterback to a tongue of Aloha, was these Crossing patterns you would have Jalen waddle and Tyree kill on the right side of the field and they would run these 10-yard Crossing patterns with Jaylin waddle, and you would run this 20-yard Crossing pattern with Tyreke Hill.

9:56
And to, I had this unique ability, as they were crossing the field, be able to Loft the ball, over defenders heads and land into the guy that he was trying to hit. Tyreke was covered. There was a good chance that June be open. If Jalen had the coverage coming in on him 10 yards down.

10:12
The field Tyreke would oftentimes be open or at least be only In single coverage, then to a gets hurt and they bring in scholar Thompson. And he sees to a wide open on the field and instead of Loft and over the Defenders heads, he just throws a bullet to Tyreke. Now Tyreke was open, but he didn’t see the different layers of the field.

10:31
He didn’t see that there was different levels on the football field, he was making that play. And so instead of lost in that ball over into the guy’s hands, he just zinged it right in there and got it intercepted. Why? Because even though Tyreke was wide open and technically he was throwing an accurate past to Tyreke, he didn’t see the different layers, he didn’t see that.

10:48
There was a guy six or seven yards in front of him. That was able to intercept the ball. He was at a different level. He was at a different layer Skylar, Thompson didn’t see that. And he got picked off. Now it’s the same thing with trading. In a sense, we have to be able to see the daily level, we have to see the weekly level.

11:05
We have to be able to see the monthly level. You have to see the intraday levels and just because we see that the weekly is overbought, doesn’t necessarily mean that the monthlies overbought, the monthly might be. I didn’t extreme oversold level, is it happened a bunch? No, but it does happen a lot more.

11:21
If you’re looking at intraday levels versus daily price action or daily versus weekly, you can have a daily. That’s overbought, like, what we’ve just seen with the NASDAQ, it’s rallied six straight days Non-Stop and you can have in some situations. I’m not saying this particular situation, we’re getting that, but you can have it to where the NASDAQ on the weekly chart though, it’s still over solder, just coming out of oversold conditions to give a good buy entry.

11:43
So you don’t want to look at the success tips and absolute saying. Okay, we’re over bot on The Daily. I can’t trade this at all. You want to look at it from different levels and you want to look at it with the entire market and view. I’ve seen us get over bought simply by trading sideways. There was enough strong days to the upside and for whatever reason, it was able to work those oversold conditions off and get us actually over by.

12:04
Now, if I’m looking at like that, does that necessarily mean the markets over? But no, because the price action sure isn’t showing anything close to what I would consider over, Bosh to sometimes a glitch in the indicator. The remember, Educators are all derivatives of price and volume. So it’s best to get your analysis from Price first and then consider what you’re getting out of the indicators.

12:26
Now, probably the best way to manage or to understand whether a stock is overbought or oversold is whether the risk can be kept tight. If you were to trade it oftentimes I don’t even have to look at the stochastics to know. It’s overbought. If I’m looking at it in the nearest Price support that I can put a reasonable stop-loss below, is 8 to 10% away.

12:46
And we’re talking about a stock like Caterpillar or we’re talking about McDonald’s or Walmart, there’s a good chance that one’s going to be overbought or let’s just say if it’s with the ETS of like the NASDAQ, the cues or spy, five or six percent, probably going to be getting a little bit overbought there.

13:01
So, the best way to avoid trading stocks that are extremely overbought or oversold is when they go way outside your risk parameters, if you can’t find a good area to put a stop loss at, there’s probably a good reason to move on from the trade, regardless of what the chart looks like. If I can’t find a good way to manage, Risk. I don’t care what the chart looks like.

13:17
I’m moving on to the next chart because there’s thousands of charts out there. There’s bound to be another one. So remember, one of the best ways to judge a Stock’s overbought oversold levels is simply based off of, can you even manage the risk on the trade? In terms of where you put your stop loss at relative to where your Enterprise would be?

13:34
No good justifying. It don’t be like, I could probably scoot the stop-loss up, you know, three or four percent and make it a reasonable trade. Yeah, the candle placement doesn’t make sense. But at least I’m keeping my risk tight know that does it. That’s not how it works. It’s the whole purpose of putting a stop loss on your trade is putting it at a place to where if it crosses that level, you know, that you no longer want to be in that trait.

13:55
Otherwise you’re just putting it in an area where there just could be some noise in the trade, it could go down a couple days and then pop right back up, but in the meantime, you get stopped out. And who wants that? Remember to sometimes, you can have stocks that are over Bop at the markets oversold. I mean, I know we’re getting guy kind of into crazy town here in terms of all the different variables that were talking about.

14:13
But yeah, the market can be overbought. In the stock isn’t like, let’s take this NASDAQ here, it’s up, six, straight days, it was given me, stochastics readings of 99 out of 100, sitting below key. Resistance levels, is that really something that I want to get long on a particular stock, regardless of how good of a setup it is or regardless of, maybe it’s extremely oversold.

14:34
Do I necessarily want to get into that know? I don’t because the overall Market could lend itself to a sell-off because it has gotten. So overbought that regardless of the stocks that are overbought or oversold within that industry, Dex. It’s going to knock them all down. So that’s my analysis.

14:49
And my answer to booties question about oversold or overbought conditions. I hope it was able to help you guys out as far as this bourbon. It wasn’t good, it wasn’t good at all. I’m going to give it a 44, I just don’t think it was great at all. I tasted a lot of like Oak flavors but it was really, it was a really Bland flavor a little bit on the dark fruit side.

15:07
Somewhat spicy could even pick up like some vanilla. But overall, I did not like this bourbon at all. Alamo is a No, go 4.4. And make sure if you have any questions, send them to me, ryan@shareplanner.com.

15:22
I do read your e-mails and try to make every email a podcast episode of its own, and make sure to sign up for swingtradingthestockmarket.com, guys, you’re helping the podcast continue to grow and reach new audiences. So, I appreciate you guys finding up supporting this podcast with your membership, in spring training, the stock market.com.

15:41
Thank you guys. And God bless.

15:44
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16:01
So go ahead, sign up by going to shareplanner.com trading block, that’s www.shareplanner.com/trading-block. And follow me on chair planners, Twitter, Instagram, and Facebook, where I provide unique market, and trading information. Nation every day. If you have any questions, please feel free to email me at ryan@shareplanner.com all the best to you and I look forward to trading with you soon.