One of the major values of oscillator analysis, like a momentum line, is being able to determine when the markets are in extreme areas. This is very helpful in stock trading. But how will our trader know what is too high and what is too low on the momentum line? The simplest solution is by visual inspection. Upper and lower boundaries can be drawn after checking the back history of the momentum line on the chart. Upper and lower boundaries will have to be adjusted periodically, typically after important trend changes have occurred. Still, boundaries are the simplest and most effective way to identify the extremities. Below is a rough graph example of how the upper and lower boundaries would look on the chart.

Andy Swan is co-founder and head trader for DaytradeTeam.com.  To get all of Andy's day trading, swing trading, and options trading alerts in real time, subscribe to a one-week, all-inclusive trial membership to DaytradeTeam by clicking here.