The Overbought & Oversold Forex indicator for MT4 identifies overbought and oversold market conditions for any currency pair.
The indicator appears as a red colored line that oscillates between 0 and 70 in a bottom chart window.
Key points:
- The 0 indicator reading is considered oversold.
- The 70 indicator reading is considered overbought.
The indicator can be used in various ways. I will present you an example below:
Buy & Sell Trade Example
- A buy trade should be executed as soon as the indicator reaches the 0 oversold territory and the underlying trend is upwards.
- A sell trade should be executed as soon as the indicator reaches the 70 overbought territory and the underlying trend is downwards.
The indicator works equally well on all currency pairs (majors, minors and exotic) and shows promising results if used correctly.
Free Download
Download the “Overbought_Oversold.mq4” indicator for MT4
Indicator Chart (EUR/USD M30)
The picture below shows the Overbought & Oversold mt4 indicator in action on the trading chart.
Trading Tips:
Feel free to use your own favorite trade entry, stop loss and take profit method to trade with the Overbought & Oversold Forex indicator.
As always, trade in agreement with the overall trend and practice on a demo account first until you fully understand this indicator.
Please note that even the best trading indicator cannot yield a 100% win rate over long periods.
Indicator Specifications & Inputs:
Trading Platform: Developed for Metatrader 4 (MT4)
Currency pairs: Works for any pair
Time frames: Works for any time frame
Trade Style: Works for scalping, day trading and swing trading
Input Parameters: Variable (inputs tab), color settings & style
Indicator type: Overbought/oversold
Does the indicator repaint? No.
Overbought/Oversold + Double Moving Average Signal Forex Day Trading Strategy
This day trading strategy uses the Overbought Oversold Forex Indicator and the Double Moving Average Signal Indicator to capture intraday momentum reversals in trending markets.
The first indicator identifies potential exhaustion zones — overbought above 70 and oversold near 0 — while the second indicator confirms the prevailing trend direction using histogram readings.
When combined, they provide a balanced system that detects short-term pullbacks and strong continuation moves within the daily range.
This method works best on the M30 and H1 timeframes, focusing on major forex pairs such as EURUSD, GBPUSD, USDJPY, and AUDCAD.
It’s ideal for traders who prefer 1–3 trades per day with clear entries and exits based on both momentum and trend alignment.
Buy Entry Rules
- Check that the histogram of the Double Moving Average Signal indicator is above the zero line, showing a bullish trend.
- Wait for the Overbought Oversold indicator to drop to the oversold zone near 0.
- When the indicator line starts turning upward from the oversold region while the histogram remains positive, open a buy position.
- Set the stop loss 15–25 pips below the nearest swing low or 1.2× the ATR.
- Take profit when the Overbought Oversold Forex indicator reaches the 70 level or when the histogram crosses below zero.
Sell Entry Rules
- Confirm that the Double Moving Average Signal histogram is below zero, indicating a bearish trend.
- Wait for the Overbought Oversold indicator to climb above the 70 overbought level.
- When it starts curving downward while the histogram remains negative, open a sell trade.
- Stop loss: place 15–25 pips above the recent swing high or 1.2× the ATR value.
- Take profit when the indicator returns to the 0 level or when the histogram turns positive again.
Advantages
- Combines overbought/oversold signals with trend confirmation for more reliable intraday entries.
- Works effectively in active sessions (London and New York) when volatility supports strong swings.
- Simple visual confirmation through two clear indicators — no need for complex analysis.
- Adaptable for various pairs and timeframes with consistent risk management.
Drawbacks
- The overbought/oversold indicator can stay extreme for long periods in strong trends.
- Requires confirmation from both indicators, which can delay entries slightly.
Case Study 1: EURUSD M30
During the London session, the Double Moving Average Signal histogram stayed above zero, confirming a bullish bias.
The Overbought Oversold indicator dipped to 5 before reversing upward near 1.0785.
A buy trade was placed at that level, with a 20-pip stop.
Within three hours, EURUSD rallied to 1.0820, producing a 35-pip profit.
The exit was triggered as the indicator touched the 70 level, indicating short-term exhaustion.
Case Study 2: USDJPY H1
In the New York session, the histogram was negative, signaling a bearish environment.
The Overbought Oversold indicator climbed to 80, suggesting overbought conditions.
A short trade was taken at 149.25, with a 25-pip stop.
Within two hours, the price fell to 148.70, giving a 55-pip gain before the indicator reached the 0 zone.
Both indicators aligned perfectly to catch the intraday reversal.
Strategy Tips
- Use this setup only when one indicator confirms the trend and the other shows a retracement.
- Trade during high-volume hours for maximum movement potential — 7:00 to 17:00 GMT.
- Avoid trading when the histogram fluctuates around zero or when the Overbought Oversold indicator remains flat.
- Use trailing stops to secure profits once the trade moves in your favor by at least 20 pips.
- Check higher timeframes (H4 or Daily) to ensure you’re trading in the same direction as the main trend.
This day trading strategy offers traders an efficient and disciplined method to capture consistent intraday profits.
It’s a well-balanced approach that filters out weak setups while focusing on the highest-probability trades each day.
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Download the “Overbought_Oversold.mq4” indicator for Metatrader 4
