Trading Traps
Overextended
A market that has moved too far too fast
An overextended market has moved significantly in one direction without meaningful pullbacks. While the trend may continue, entering at overextended levels carries higher risk of mean reversion.
✓How to Recognize
- •Price far from moving averages
- •Multiple consecutive candles in same direction
- •RSI or momentum indicators at extremes
- •No recent pullbacks or consolidation
⚡How to Avoid
- →Wait for pullback to support/resistance
- →Don't chase extended moves
- →Use smaller positions in overextended conditions
- →Consider taking partial profits instead of adding