As we just learned In The Introduction : ( ) that a high means that there were more candles then candles. As stock or index can't go up or down in straight line there will be some pullbacks. IF gets Overbought or Oversold and we get a minor pullback in prices then it must not be considered as a reversal in direction.
It Can be dangerous to believe that just because the shows overbought or oversold condition then its time to sell or buy.
Once we understand What really does, Overbought and oversold conditions must not be a signal of reversal for us which indicate that price will change its direction.
It's a myth and we may miss out on a lot of bigger moves on those momentum stocks.
Following example is a perfect case of Overbought And Oversold And still price continued its Main Direction on Weekly, Daily and on 15 Minutes Charts as well.
Example 1) When Price was at 500 levels did show overbought Conditions and From that, it remained in overbought zone for a long time and price rallied almost 5 times to 2500 levels.
Example 2) was Oversold When Price was around 880 and Since then it made a low of 670 Almost 25% fall remaining in Oversold Conditions. ( )
Example 3) Nifty on 15 Minutes Chart Since when Went below 30, Oversold condition and Nifty gave up another 300 points from there.
Example 4) Banknifty Rallied almost 700 Points Since showed Overbought Condition. ( 15 Minutes )
The done not provide signals to buy when it is overbought or oversold. It simply means that the prices are very strong or very weak.
I know that most of experience traders are here who already knows this things.
If the stock is trading then only use RSI.
If ADX is greater than 30, it means trending , plot moving averages and look for crossovers for entry and exits.
Whenever AdX below 25, it means trading ,use RSI oversold or overbought range for proper entry and exits.