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What Is Oversold? The term oversold refers to a condition where an asset has traded lower in price and has the potential for a price bounce. An oversold condition can last for a long time, and therefore being oversold doesn’t mean a price rally will come soon
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What Is Oversold?
Oversold is a term used to indicate that an asset such as Bitcoin is trading at a price lower than its true value. Oversold is the opposite of overbought. Therefore, whether an asset is treading the oversold region is subjective since analysts employ different analysis tools.
An oversold occurrence has no known reversal period. However, technical indicators measure a cryptocurrency asset’s oversold status. Moreover, the indicators provide estimates of when the condition is likely to reverse. In most cases, the reversal date is based on “if” conditions. For example, analysts may observe that a shift will only happen if a certain price level, often called a support level, is reached.
Common technical indicators used to indicate an oversold condition include relative strength index (RSI) and Bollinger bands. The RSI indicator uses a momentum oscillator to evaluate the speed and price fluctuation. On the other hand, Bollinger bands consist of a lower, middle, and upper band.
The middle band taps into an asset’s moving average while the lower and upper bands record standard price deviations in respect to the middle band. An oversold condition occurs when the values shift towards the upper band. Apart from technical indicators, an oversold condition can also be revealed using fundamental analysis. Fundamental indicators rely on current and past prices.