Fallen fast and fallen deep:oversold says the drop was steep.
A label for a market whose price has fallen quickly and far by the measure of an indicator; an RSI reading below 30 is conventionally called oversold.
It describes recent movement and does not mean that a rise is due: in a persistent downtrend an indicator can stay oversold for a long time.
In plain words
Oversold is the mirror image of overbought: a label for a market that has fallen quickly and far by the measure of an indicator. With the relative strength index, or RSI, which runs from 0 to 100, a reading below 30 is conventionally called oversold.
See it move
In the upper zone: Overbought
Why it matters
Chart readers use the label as a note that a fall has been unusually fast and may pause or bounce. In a persistent downtrend the indicator can remain in the oversold zone for a long time while the price continues lower.
Worked example
An example only. The figures are round and invented for the arithmetic: they are not market prices.
RSI compares the average gain with the average loss over a set number of periods, commonly 14; here the average gain is 1 and the average loss is 4.
- 1Ratio of gain to loss1 ÷ 4 = 0.25
- 2RSI = 100 − 100 ÷ (1 + 0.25)
- 3100 ÷ 1.25 = 80, so RSI = 100 − 80 = 20
A reading of 20 is below 30, so by convention the market is called oversold.
A common mistake
Oversold does not mean cheap. The reading describes the speed of the recent fall and says nothing about the value of what is being traded or about where the price goes next.
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Educational information, not investment advice or a recommendation to trade.