What are overbought, oversold regions and divergences in momentum indicators??

Indicators like momentum, rate-of-change, the price oscillator, and the MACD are "unbounded" studies, that is, they have no absolute high or low boundaries. Overbought and oversold zones, however, can be established simply by picking levels that isolate more extreme oscillator values. There are no hard-and-fast rules; common guidelines to capture the highest and lowest 10% of oscillator readings.
Overbought and oversold signals represent potential selling and buying opportunities, respectively. Accordingly, they can be used to establish positions in anticipation of a new trend, or to liquidate, reduce, or protect existing positions. For example, an oscillator moving above its overbought level might lead a trader to (1) to take short position in anticipation of a downturn in prices, (2) liquidate an existing long position, (3) liquidate part of a long position, or (4) move a stop order closer to the market to protect profits. Visit us http://www.stockinvestmenttips.im
The RSI and Stochastics, for example, both range between 0 and 100. Overbought and oversold levels for such indicators are commonly set equidistant from the upper and lower limits for example, 70 and 30 or 80 and 20.Although the developers of these indicators suggest a variety of applications for these oscillators, the fundamental information they convey is identical to that of the other momentum indicators. Besides overbought and oversold levels, the other notable countertrend oscillator signal is referred to as divergence, which describes the phenomenon of momentum moving in the opposite direction of price. As mentioned earlier, waning momentum often signals a dying trend and a possible reversal or correction. A classic divergence refers to a higher price high accompanied by a lower oscillator high, or a lower price low accompanied by a higher oscillator low. The traditional response to a divergence in a rising market would be to establish a short position in anticipation of a new downtrend, or liquidate (or reduce) an open long position as a protective measure.