Overbought & Oversold

In the Volume Concepts, Overbought and Oversold conditions are not static levels but are dynamically generated based on the current market's statistical distribution.

Understanding the Zones

The indicator defines two primary zones for both Overbought (OB) and Oversold (OS):

1. Inner Zone (Level ±1.0):

   • This represents the first threshold of extension.

   • When the Volume Line enters this zone, the market is becoming stretched.

   • Entering this zone is often a sign of high momentum but also a warning of potential mean reversion.

2. Outer Zone (Level ±1.5):

   • This represents extreme statistical extension.

   • Remaining in this zone for multiple bars indicates an "Exhaustion" phase or a parabolic move.

   • Reversals from this zone are typically much more violent.

Interpretation

• Entering OB (> 1.0): Buying power is high. Look for signs of weakness if it fails to sustain the move.

• Leaving OB (< 1.0): A sign that momentum is waning and a reversal or correction may be starting.

• Entering OS (< -1.0): Selling pressure is extreme. Sellers are likely becoming exhausted.

• Leaving OS (> -1.0): A sign that the selling climax has passed and buyers are potentially stepping in.

Visual Symbols for State Awareness

To provide immediate visual feedback without checking the level numbers, the Volume Concepts uses stylized icons:

• Intensity Gradients: Dynamic vertical fills that activate at the ±1.0 thresholds, growing more opaque as the market becomes increasingly over-extended.

• Exhaustion Markers (✦/❖): Stylized star and diamond icons that appear at the ±1.5 statistical boundaries to signal deep trend exhaustion.

These symbols can be toggled on or off in the Oscillator Zones settings group.