Skip to main content

Overbought and oversold conditions

One our students recently asked us this question: "You use the terms over bought and over sold at times. What do they mean? and how can they help to find a profitable chart?"

Oversold simply means that the stock price has reached a TEMPORARY bottom and buyer are most likely ready to come in and buy shares.

Overbought is the opposite. Stock price has reached a TEMPORARY top and sellers are most likely ready to come in start closing positions or go short.

Use oscillators such as stochastics and RSI to visually help you identify when price has reached oversold or overbought conditions.

When the lines of the oscillator cross above 80 and higher the stock is overbought. Get ready to sell and close positions. When the lines of the oscillator cross below 20 and lower the stock is overbought. Get ready to buy.

Keep in mind that is just one parameter we look at.

In your analysis you need to see where support and resistance is and how price behaves around these areas. Also pay attention to candlestick formations that indicate reversals and condition patterns as well as consolidation and breakout patterns.

Good Trading!


Trading Risk Disclaimer

All the information shared is provided for educational purposes only. Any trades placed upon reliance of SharperTrades, LLC are taken at your own risk for your own account. Past performance is no guarantee. While there is great potential for reward trading stocks, cryptos, commodities, options, forex and other trading securities, there is also substantial risk of loss. All trading operations involve high risks of losing your entire investment. You must therefore decide your own suitability to trade. Trading results can never be guaranteed. SharperTrades, LLC is not registered as an investment adviser with any federal or state regulatory agency. This is not an offer to buy or sell stocks, cryptos, forex, futures, options, commodity interests or any other trading securities.

Popular posts from this blog

Kal's Option Trade of the Week - NKE Vertical

The market has been range bound for the last few weeks with volatility on the decline, and earnings all over the place.  So where to go to look for a trade? Nike has already had Earnings and is near a low of the year, so seems like a good option.  As a contrarian that can mean only one thing to me: I have to make a trade with the assumption it will go up from here over the next 45ish days. We will do that by making a Long Call Vertical trade to bet that it starts to head up over the next couple months. For more on my trading and how to join me in real time, see below. Watch  the video  to get the details. Kal Trading Risk Disclaimer   All the information shared in this video is provided for educational purposes only. Any trades placed upon reliance of SharperTrades.com are taken at your own risk for your own account. Past performance is no guarantee. While there is great potential for reward trading stocks, commodities, options and forex, there is also substantial risk of loss. All tr

Mastering Flag Breakouts for Profitable Trading!

    "Flags" are one of the most common chart patterns. Also known as "consolidation" after the stock has moved up, Trading flag breakouts often provide favorable risk-reward ratios.  By defining specific entry and exit points, you can assess the potential profit relative to the risk taken. This risk-reward advantage enhances your overall profitability when trading flag breakouts, or flag break below. ⚐ Flag breakouts offer a well-defined pattern on the price chart. The consolidation phase forms a distinct flag shape, providing a visual cue  to anticipate a potential breakout. This clarity helps you to feel confident enough when to take the trade.  ⚐ Flag breakouts offer high probability setups: They occur within the context of an existing trend . The consolidation phase represents a temporary pause. Once the breakout occurs, it signifies a resumption of the original trend, leading to strong price movements.  By aligning  trades with the prevailing trend, you can

The Stock Market's Next Move: What Will Happen to Major Indices and Mega Caps?

Today we take a look at the major indices and some of the large caps (AAPL, AMZN, BA, DIS, META, MSFT, GOOG, TSLA, UBER). Watch the video to get the insight and what to expect moving forward. Good Trading! Trading Risk Disclaimer All the information shared is provided for educational purposes only. Any trades placed upon reliance of SharperTrades, LLC are taken at your own risk for your own account. Past performance is no guarantee. While there is great potential for reward trading stocks, cryptos, commodities, options, forex and other trading securities, there is also substantial risk of loss. All trading operations involve high risks of losing your entire investment. You must therefore decide your own suitability to trade. Trading results can never be guaranteed. SharperTrades, LLC is not registered as an investment adviser with any federal or state regulatory agency. This is not an offer to buy or sell stocks, cryptos, forex, futures, options, commodity interests or any other tradi