Overbought and oversold are the most Overused, abu
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Posted On: 06/01/2017 6:36:18 PM
Overbought and oversold are the most Overused, abused and misused concepts in the market, to me 
Using an rsi (14) overbought is above 70-80 and oversold is below 30-20 and many people feel that at these levels the price can not go any higher when overbought or go any lower when oversold in the near term, however stocks can stay overbought/sold for extended periods. Remember that in order for them to get there, there has to be strong buying/selling pressure in the first place and that in itself is a strong sign that that direction/trend will continue, thus the feeling that this is actually still a good thing/bad thing.
Anyway, it is meant as a cautionary momentum indicator that is secondary to price and volume that many use as an area to start taking at least some profits (overbought) or to start building a long position (oversold). Use whatever works for you, but I always prioritize volume 1st, everything else is secondary to me. Good luck and google and read up on as many articles on it as you can. Invest first in your own education, that is the one guaranteed to give the greatest long term returns to you!!
Using an rsi (14) overbought is above 70-80 and oversold is below 30-20 and many people feel that at these levels the price can not go any higher when overbought or go any lower when oversold in the near term, however stocks can stay overbought/sold for extended periods. Remember that in order for them to get there, there has to be strong buying/selling pressure in the first place and that in itself is a strong sign that that direction/trend will continue, thus the feeling that this is actually still a good thing/bad thing.
Anyway, it is meant as a cautionary momentum indicator that is secondary to price and volume that many use as an area to start taking at least some profits (overbought) or to start building a long position (oversold). Use whatever works for you, but I always prioritize volume 1st, everything else is secondary to me. Good luck and google and read up on as many articles on it as you can. Invest first in your own education, that is the one guaranteed to give the greatest long term returns to you!!
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