Tomas DeMark defined two overbought / oversold conditions:
- Extremal overbought / oversold condition occurs when the oscillator is for more than 5 bars in the overbought / oversold area.
- Moderate overbought / oversold condition occurs when the oscillator is in the overbought / oversold area for less than 5 bars.
If the indicator exits the moderate overbought / oversold area, then reversal may occur.
Whereas it exits the moderate overbought / oversold area after it has been in the extremal overbought / oversold area, this does not generally mean trend reversal. As a general rule, before the reversal, the indicator must penetrate this area again and, fixing the moderate overbought (oversold) conditions, exit the area. Only after this may trend reversal occur.
source : www.alpari.com
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