CHAPTER 8Overbought/Oversold (OBOS) Analysis – The Intersection of Extremes

Chapter objectives

In this chapter, the Overbought/Oversold (OBOS) framework is introduced as a way of generating trading signals in commodities that lie at the intersection of extremes in their long and short speculative positioning, and extremes in their price. Extremes in speculative positioning can provide useful trading insights in isolation, but it is mostly also in the context of price extremes that these they become particularly powerful.

The OBOS framework uses a combination of speculative positioning data and pricing data over specific timeframes. Specific thresholds are used to define whether a commodity becomes ‘Overbought’ or ‘Oversold’, within the framework, and it is during these points that trading signals are generated.

The framework is also useful in the analysis of behavioural patterns to help manage risk more effectively, and in combination with numerous other positioning models and analytics, to produce more sophisticated and refined trading signals.

8.1 The Overbought/Oversold (OBOS) Philosophy

Part of the core philosophy behind the OBOS framework is that speculative positions need to be unwound before expiry. All positions in the ...

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