GLOSSARY // Technical Analysis
Oversold
Oversold describes a market that has fallen hard enough that momentum oscillators hit the bottom of their scales: RSI below 30 or a stochastic reading below 20 by convention. It measures the speed of the recent selling, not whether the price has reached good value.
Cheap-looking oscillators are the bait in most failed dip buys. A stock in a genuine collapse can hold an RSI in the teens through a 40% decline, printing oversold the entire way down. The reading gains meaning with context: oversold at a well-tested support level in an intact uptrend describes a pullback; oversold in a name making 52-week lows on bad news describes a downtrend doing what downtrends do.
Traders who use it well pair the reading with a price trigger, such as a reclaim of a broken level or a bullish reversal candle, instead of buying the number itself.
A stock in a yearlong uptrend pulls back from 96 to 84, eight red days in a row, and RSI touches 26 as price lands on the 50-day moving average near 84.50. The next session prints a hammer and closes at 86.20. The combination, oversold reading plus support plus reversal candle, precedes a recovery to 93. The same RSI 26 on a stock breaking to new lows would have carried no such setup.
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Educational only — not financial advice. Definitions simplified for clarity; markets are messier than definitions.