Dictionary

Oversold

A condition where an oscillator reads near the bottom of its scale, meaning price has fallen quickly, not that a bounce is owed.

Divergence between price and RSI. RSI measures how one-sided recent price moves have been on a 0–100 scale. Here price sets a higher peak while RSI sets a lower one, so the second push carried less momentum than the first.

The mirror of overbought and equally misleading. An rsi below 30 in a downtrend is the expected reading, not an anomaly, and buying it simply because it is low is how traders end up catching falling knives.

Declines are typically faster than advances, so oscillators reach oversold levels quickly and can stay there. In a genuine bear phase the oversold readings come one after another, each one looking like an opportunity.

Where the concept has some value is in markets with a demonstrated tendency to mean-revert, and paired with a level and an invalidation-level. On its own, oversold means the market has been going down, which the chart already told you.

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