Component of the method- theory
Oversold
o A condition in which the price of an underlying asset has fallen sharply, and to a
level below which it true value resides.
o This condition is usually a result of market overreaction or panic selling.
A situation in technical analysis where the price of an asset has fallen to such a
degree - usually on high volume - that an oscillator has reached a lower bound.
o This is generally interpreted as a sign that the price of the asset is becoming
undervalued and may represent a buying opportunity for investors
o Assets that have experienced sharp declines over a brief period of time are often
deemed to be oversold.
o Determining the degree to which an asset is oversold is very subjective and could
easily differ between investors.
o Oversold is the opposite of overbought.
Overbought
o A situation in which the demand for a certain asset is unjustifiably pushes the
price of an underlying asset to levels that do not support the fundamentals.
o In technical analysis, this term describes a situation in which the price of a
security has risen to such a degree - usually on high volume - that an oscillator has
reached its upper bound.
o This is generally interpreted as a sign that the price of the asset is becoming
overvalued and may experience a pullback
o An asset that has experienced sharp upward movements over a very short period
of time is often deemed to be overbought
o Determining the degree in which an asset is overbought is very subjective and can
differ between investors.
o An overbought security is the opposite of one that is oversold.
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