The OB/OS defines the momentum of the market by measuring a moving average of the distinction between the declining and advancing issues. To measure the Overbought/Oversold indicator you should subtract the number of declining issues from the amount of advancing issues and take a 10-period moving average of gotten value.
Is not defined until the 10th sample as it uses a moving average the value at the start of a data series. Points over 200 are bearish and readings under -200 are usually bullish. A sell signal is sent if the indicator moves under +200 and a purchase signal is sent if the OB/OS indicator moves over -200.
The OB/OS indicator is also helpful for defining the market's momentum. If more stocks are decreasing in price, a value below zero is generated. If more stocks are increasing in price (more advancing than declining), a value over zero is generated.To handle broad market indicators in the most efficient way, use them for trading against broad market indices through futures, mutual funds, and options.