Technically Oversold
Traders can also use technical indicators to establish oversold levels. A technical indicator only looks at the current price relative to prior prices. It does not take into account fundamental data.
George Lane’s stochastic oscillator, which he developed in the 1950s, examines recent price movements to identify changes in a stock’s momentum and price direction. The RSI measures the power behind price movements over a recent period, typically 14 days.2
A low RSI, generally below 30, signals traders that a stock may be oversold. Essentially the indicator is saying that the price is trading in the lower third of its recent price range. This isn't to say the price will bounce immediately. Many traders wait for the indicator to start heading higher before buying since oversold conditions can last a long time. For example, a trader may wait for the oversold RSI to move back above 30 before buying. This shows that the price was oversold but is now starting to rise.
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