The Homma Overextended Indicator
This indicator helps you Sell into Strength and to derisk your trade.
Every successful swing trader I know of has one element built into their system: Selling into Strength.
You can watch Kullamagie’s streams (I am currently watching them in-depth) or Marios Stamatoudis’s interview with Richard Moglen from the Traderlion, in which he constantly mentions “rewarding himself by selling onto strength.”
Or even our own Nitin’s (finally Nitin) trades during the recent weeks/months where he has mentioned selling onto strength on quite a few occasions (Waarene, Swiggy, etc).
Selling (some) into Strength ensures that a trade that worked in your favor is quickly derisked and doesn’t turn into a losing one. (I just remembered Mark Minervini and I am lowkey embarrassed by why I did not start with him as an example here. Mark is famous for never letting his winning trade turn into a loser trade).
But, Selling into Strength is incredibly difficult.
You would want to sell at a swing high from where there is a chance of a deeper pullback or a time correction.
However, identifying reversal spots is almost impossible.
Therefore many traders use some rules to define overextendedness which can then be used to Sell into Strength (or sell partially i.e to derisk the trades). These rules dont predict exact reversal swing highs but work on average.
I have previously discussed how I define overextendedness and how some other pea traders do in this article.
Today I share the Tradingview indicator which fires whenever the price gets over-extended. I have attached two recent examples in Swiggy and Waareene as an example
https://in.tradingview.com/script/0l5VIyGE-The-Homma-Overextended-Indicator/
For a short explanation of the indicator, please watch this YouTube video.
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