Stochastic Indicator and Relative Strength Indicator (page 64, 107)

Both indicators are often used to indicate theoretically overbought or oversold conditions. They tend to identify tops and bottoms quite well.

Liabilities: The concepts of overbought and oversold are not useful and are often misleading. Frequently markets that are overbought continue to go considerably higher, while markets that are oversold continue to go considerably lower.

Solutions: Done use the SI & RSI for determining overbought or oversold conditions. Use these indicators as timing methods when the readings cross above or below certain values. Another method of using the RSI & SI is to exit trades using a shorter SI or RSI length than was used for entry.

Stochastics: Basic explanation
The stochastic indicator consists of two values: %K & %D. %D is a derivative of %K. %K is determined by using a simple mathematical formula.
The SI is a price oscillator, which compares today's price behavior with the price behavior x number of periods ago.