I was wondering if anyone has considered this thought process (which is probably a bit warped and overly philosophical). Especially since many indicators seem to miss measuring overbought and oversold.
My thought is this. Stocks, for example, have a value that can be calculated and therefore, a stocks price can be greater or less than that value. I know there can be a disconnect in the price of the stock that is being traded and that price relative to financially calculated values such as book value, etc. But all in all, there can be price mismatches that indicate it is either overbought or oversold. This would make sense to use an indicator on a chart to show if it is overbought/oversold relative to a perceived value of the price on a chart.
But currencies on the other hand, don't really have "value" per se (unless you want to get into things like parity between countries currencies), so does it make sense, and do you think it may make using overbought/oversold indicators on charts for currencies? I know indicators by their very nature are lagging, which is an issue for stocks as well. So if we are trying to determine overbought/oversold for a currency, what value would it be relative to? The banks are the ones who will determine what a currencies value will be anyway; of course based on a variety of factors which include swaps for their corporate / government clients, carry trades, etc. But as retail traders, I believe the banks somewhat use this type of information against us, which kind of makes these types of indicators useless.
Does anyone have any thoughts about this? Are there any articles that I could be directed to that may offer evidence that indicators that were initially created for stock trading can be applied the same way for currencies if the underlying dynamics are different?
Thanks
My thought is this. Stocks, for example, have a value that can be calculated and therefore, a stocks price can be greater or less than that value. I know there can be a disconnect in the price of the stock that is being traded and that price relative to financially calculated values such as book value, etc. But all in all, there can be price mismatches that indicate it is either overbought or oversold. This would make sense to use an indicator on a chart to show if it is overbought/oversold relative to a perceived value of the price on a chart.
But currencies on the other hand, don't really have "value" per se (unless you want to get into things like parity between countries currencies), so does it make sense, and do you think it may make using overbought/oversold indicators on charts for currencies? I know indicators by their very nature are lagging, which is an issue for stocks as well. So if we are trying to determine overbought/oversold for a currency, what value would it be relative to? The banks are the ones who will determine what a currencies value will be anyway; of course based on a variety of factors which include swaps for their corporate / government clients, carry trades, etc. But as retail traders, I believe the banks somewhat use this type of information against us, which kind of makes these types of indicators useless.
Does anyone have any thoughts about this? Are there any articles that I could be directed to that may offer evidence that indicators that were initially created for stock trading can be applied the same way for currencies if the underlying dynamics are different?
Thanks