When to Buy or Sell Any Stock

If you always knew the next move of an individual stock, you would have impressive results. If there was an online tool against which you could check all stocks quickly and conveniently, you would grow your portfolio fast. All shares swing back and forth between oversold and overbought conditions. The underlying company’s quality does not matter—all stocks must go through these cycles.

The good news is there is a way to check a stock to see its selling and buying action. This only takes seconds. Note that the overbuying and overselling conditions always reverse themselves. Every single investment you come across is striving to go back to neutral; that is, to a state where it is neither oversold nor overbought. While striving for neutrality, shares are predictable in their behavior.

Take the instance of a high-quality company. If its share prices increase, investors will flock there, and it will quickly become overbought. This happens even to the best of stocks. Once every investor that was interested buys shares, the demand decreases suddenly causing the shares to fall. The same thing happens with oversold shares.

Many people want out and dump their shares leading to overselling. Since everyone who wanted to sell has sold, the number of sellers drastically reduces. This is just a simplified version of the whole concept. But what you should know is that:

  • Oversold shares usually rise within weeks (sometimes months).
  • Overbought shares usually fall in price.
  • It is very easy to check a stock’s situation. 

There are several financial sites that calculate and show you all the necessary data in a line graph. In as few as three clicks, you will know how oversold or overbought a share is. The Relative Strength Index (RSI) can be defined as a technical analysis indicator that shows a number (0 to 100). When the number is below 30, it is oversold and when it is over 70, it is overbought.

When IBM shows a 25 RSI, you know that those shares will probably rise. The shares are oversold, and the remaining investors have faith in the company. When IBM shows a 70 or 80 RSI, the next thing for the shares is to fall. Buyers have flocked and the shares have increased in prices up to a peak point. The demand will dry up suddenly.

The stock market does not have certainty, but the RSI is a reliable indicator. The RSI is typically used to decide between two high-quality companies. The tool may not be helpful if the difference in RSI values is insignificant, such as 25 and 30. The stock with the lowest RSI value is the one that is most oversold. If you are interested in undervalued opportunities, find stocks with an RSI value of 30 and below. 

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