The and are two of the most commonly used and respected indicators in trading . By placing them on top of each other you can save valuable space on your chart and stay more easily within your TradingView indicator limit.
The is bright blue, with the "neutral" 30-70 chart area shaded blue.
The is red and blue, with the "neutral" 20-80 chart area shaded purple.
None of the other annotations shown above will appear, they are only to demonstrate how they can be interpreted.
So what does the do?
Broadly speaking, the measures the strength and movements of a market.
- Above 70 the is considered oversold = an increased likelihood of an incoming price drop.
- Below 30 the is considered undersold = an increased likelihood of an incoming price rise.
What does the do?
Broadly speaking, the measures the momentum of a market. It does this by measuring the relative to its own high/low over the previous period.
- Above 80 the is considered oversold = an increased likelihood of an incoming price drop.
- Below 20 the is considered undersold = an increased likelihood of an incoming price rise.
- Look for when the two lines cross over - it is an important signal.
- When the blue line is on top we have momentum driving the price up; when the red line is on top we have momentum driving the price down.
The key here is to look for periods where both the and are both low at the same time (especially on the ) = an extremely promising entry point to catch a move up. Equally, looking for periods where both the and are very high is likely a good exit point (or at least a time to make absolutely certain you have a suitable stop-loss in place), because a price drop is likely not far away.
Remember: the does not always fluctuate cleanly between the top and bottom. At any time it can change direction to reflect market conditions, which is why a stop loss is essential at all times. Equally, just because the or is at 100, it is still possible for it to keep going up due to whale action or traders FOMOing in. The same applies at low levels. Both these indicators represent historical data and therefore are not strictly predictive in nature, but show trends that may be in action.
Please give me a thumbs up and follow me if you found this useful. This tool is for educational purposes only and not a recommendation to buy or sell. Always do your own research before trading. Make sure to add this to your favourite scripts.
ps - combine this powerful indicator with knowledge of strong points with the 50/100/200 Moving Average. This will help you identify likely entry/exit points to maximise the accuracy of your predictions.