Oversold
Oversold means price has dropped too far too fast, suggesting a bounce or reversal might be coming. RSI below 30 typically indicates oversold conditions.
Understanding the Concept
Oversold is where contrarian traders make money. When everyone's panicking and selling, that's often the best time to buy—if you've got the nerve. But here's the catch: oversold can get more oversold. Just because RSI hit 25 doesn't mean it can't hit 15. You need confirmation before buying. Look for bullish candlestick patterns, volume drying up, or a higher low forming. Oversold readings in downtrends can last for weeks. In strong uptrends, oversold readings are rare and often mark excellent entry points for continuation moves.
Real-World Example
Bitcoin dumps from $45k to $38k in two days. RSI hits 22. Instead of panic selling with the crowd, you wait for a bullish candle and enter at $39k. Three days later it's back at $43k.
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