First off I am working my way through the training course, but have a question. I'm sorry if it is something I should have known, or I will cover later in the course, but I'm intrigued to know the answer. I see the word Oversold used in many articles and threads. What does this mean? Thanks.
Oversold
- Thread starter bobsbeer
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EuroTrader
Sergeant Major
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Whenever the currency is Oversold it actually means that we are looking at the prices which are at lower levels and will come up, the reason why the currency pair is oversold
Pharaoh
Brigadier General
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That pretty much sums it up.
Another way to look at it is that traders are looking for a trend to jump onto. If price starts moving, even for a good reason, price can move farther based on emotion and more people jumping on board instead of logic. This can result in an overbought or oversold situation. Often, this leads to a price correction (aka retrace, aka pullback).
Another way to look at it is that traders are looking for a trend to jump onto. If price starts moving, even for a good reason, price can move farther based on emotion and more people jumping on board instead of logic. This can result in an overbought or oversold situation. Often, this leads to a price correction (aka retrace, aka pullback).
Well there are two states a currency may be in - overbought and oversold. In first case, the currency is too expensive (price exceeds fair one) and market will sooner or later come into balance where this currency will be depreciated (return to fair price).
Same with oversold - the currency is too cheap because too much sellers are there so it'd better to buy it because in some time the price on it will start to go up.
To put it simple: EUR/USD is said to be oversold - BUY the pair, if it is overbought - open SELL position.
Hope its clear.
ForexVerified
Private, 1st Class
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You should also look at it from a supply-and-demand point of view - oversold usually means there is no one left to sell, thus when traders close their positions it will push the price up (in theory).
When an asset is oversold its price has fallen to such a degree and usually on high volume that an oscillator indicator has reached a lower bound. That is usually interpreted as a sign that said price of an asset is becoming undervalued and there might be a buying opportunity soon.
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