When we apply "oversold" as a market indicator, it is supposed to give us indications for the current market stage and whether one should buy or sell at this point of time. The word "oversold" is usually applied with regard to trading practices.
In general, the term "oversold" is used to describe a situation in which the stocks have fluctuated downwards too much.
"Oversold" is defined as the point at which prices have moved down in a quick manner. If the market is considered to be oversold, the financial experts will start buying.
When market indicators show a drop in the price level over a brief time period, moving down excessively and quickly, the market becomes "oversold". This stage of the market indicates the transfer of an extensive number of low price shares from one category of participants to another. This activity requires considerable selling power, which exhausts the actual number of sellers who may agree to keep giving away their shares at the low prices, offered to them. Individuals no longer agree to sell shares and this indicates a critical point for the market: now the expected trend is for an upwards reversal.
Free charting webinar
Mon, Nov 18th, 2013 12:00 PM - 1:00 PM EST
During the 60 minute session Paul Coghlan, founder of Coghlan Capital, looks at current charts for currencies, precious metals, US indices, highlighting turns and low risk entry points using the Median line analysis methodology.
Median line analysis reduces risk and increases the chartists ability to see trend direction, trend strength and highlight entry and exit levels.
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