I always try to tell people who use the service ‘just because a stock is overbought or oversold, that doesn’t mean it’s a sell or a buy.’ That ideology is hard for some people to grasp, as most are programmed to believe overbought to be synonymous with sell.
Not the case.
We do not try to time tops or bottoms, per se. Everything is data dependent, fully transparent, for the user to make a judgment call.
Case in example: on March the 30th of 2016, Exodus flagged a systemwide overbought signal. Some people saw this and straight away thought it equated to sell. I tried to explain to them that it wasn’t the case, that stocks tended to keep shooting higher when markets were ripping to the upside.
Here was my post from that day.
Here is the backtest data for the SPY after Exodus‘ oversold and overbought signals, all actual events and not made up in hypothetical lab situations.
If you shorted SPY with a holding period of 5 days after our OS signal, you made money 87% of the time over 30 instances. On the other hand, had you bought SPY after the system flagged OB, with a 5 day holding period, you would’ve made money 93% of the time over 30 separate instances. This is systemwide data stretching over the past 36 months.
What does it all mean?
Buy extreme weakness and buy extreme strength for easy dunk shot stock market victories. Everything else in between is trench warfare, sort of where we are now.
This is a market of extremes, swinging from pessimistic apocalyptic scenarios to hedonistic cocaine party triumphs. Humans are a depraved, sordid, crazed, species.
Trade accordingly.
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“If you shorted SPY with a holding period of 5 days after our OS signal, you made money 87% of the time over 30 instances.”
think you mean “bought SPY”, not shorted? ie. buy oversold, not sell it.