How to Specify a Trend Strength: Overbought / Oversold State

Thomas DeMark has identified two types of overbought or oversold states: extreme and moderate.

Extreme overbought (oversold) state occurs when the indicator is in the overbought (oversold) area for more than 5 bars.

When there is an overbought (oversold) state the indicator is in the overbought (oversold) area for less than 5 bars.

If the indicator having fixed a moderate overbought (oversold) state leaves this area prices downward (upward) reverse should be expected.

If the indicator leaves the overbought (oversold) area after the extreme overbought (oversold) state, as a rule, it doesn’t trigger prices reverse. Often the indicator should enter this area once again before the reverse and, having fixed the moderate overbought (oversold) state and bullish divergence / bearish convergence, leave the area. Only after that a trend reverse is possible.