Have you ever wondered why successful traders rarely sell at a bargain price or buy at an excessively high price? The secret is that they monitor market conditions systematically, and oversold is one of the tools that helps them do that.

I've seen many people talk about oversold and overbought, but I don’t really understand what they are. Oversold is when an asset has been sold off far too much, causing the price to fall below what it should be. During this time, selling pressure often weakens, and buying pressure steps in instead. Prices tend to rebound upward. In contrast, overbought is when prices have been bought too much, making them too expensive. Buying pressure weakens, and the price tends to reverse downward.

Finding these points isn’t as difficult as you might think. Most traders use RSI with the Stochastic Oscillator. I usually use RSI because it’s relatively straightforward. When RSI rises above 70, that’s overbought—prices are expensive, so you should be cautious before buying more. When RSI falls below 30, that’s oversold—prices are too cheap, and it could be a good buying point.

Another option is the Stochastic Oscillator, which uses 80 and 20 as the thresholds, respectively. Both of these indicators help me avoid bad entry points.

But here’s the important part—oversold is only a signal. It doesn’t tell you to buy immediately. I often wait for confirmation from other tools, such as looking at support and resistance levels or using the Moving Average to confirm the trend.

Have you heard of Mean Reversal? That’s a strategy that uses oversold and overbought well. When the market is moving sideways (sideway), I buy at oversold and sell at overbought. In this setup, I set RSI to 75 for overbought and 35 for oversold, then wait for it to touch the levels, making my entry and exit decisions based on the Moving Average line.

Another method is divergence, which is when the price and the indicator conflict. For example, the price keeps falling, but the RSI starts not dropping to the same lows as before. That may indicate that selling pressure is weakening. At this time, oversold is a clear signal that the price is likely to reverse.

What I’ve learned from years of trading is that you shouldn’t rely on a single indicator. Use oversold and overbought as a reference, combined with reading the trend, checking Support Resistance, and managing risk. The clearer your system is, the more accurate your trading decisions will be.