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Oversold RSI and price near support


Theory: RSI stands for Relative Strength Index and is defined as 100 times the sum of the last N days rise, divided by (the sum of the last N days rise plus the sum of the last N days fall), where N is 14, 21 or 90 for the short, medium and long term chart, respectively. Oversold RSI, meaning low RSI-values, means that lately the price has fallen a lot without many reactions up inbetween. There has been too much focus on negative aspects, and the stock has been dominated by sellers. This can not last indefinitely, and the stock should see a reaction up soon.
The fact that the price is near the support, means that when the price was at this level previously, the price showed an upward reaction. Investors who did not profit from the last increase, will want to buy now, and those who did buy the last time, but sold again, will want to buy again.
When these criteria occur simultaneously, we get a strong signal that the price will rise. At the same time, we have the opportunity to invest with a low risk, by placing a stop loss just below the support.

Score: The closer the price is to the support, and the stronger the support level is, the higher the score. RSI should in addition be low and the volume balance and the relationship between volume tops and price tops should be positive. Also, it is positive if a bottom is formed in the price or RSI chart.

Buying price: Is set one "normal movement" above the support level. A "normal movement" is defined as the average price movement during a period equal to about one percent of the length of the chart.

Price target: Is set to the estimated theoretic maximum price, given that the price develops as a slightly coloured random walk for 20% of the length of the chart. Normally, this will be 15-30 procent of the height of the chart.

Stop loss: Is set to approximately one "normal movement" below the support level.

Time horizon: Is set from 14 to 20% of the length of the chart.

 


Investtech guarantees neither the entirety nor accuracy of the analyses. Any consequent exposure related to the advice / signals which emerge in the analyses is completely and entirely at the investors own expense and risk. Investtech is not responsible for any loss, either directly or indirectly, which arises as a result of the use of Investtechs analyses. Details of any arising conflicts of interest will always appear in the investment recommendations. Further information about Investtechs analyses can be found here disclaimer. The content provided by Investtech.com is NOT SEC or FSA regulated and is therefore not intended for US or UK consumers.


Investtech guarantees neither the entirety nor accuracy of the analyses. Any consequent exposure related to the advice / signals which emerge in the analyses is completely and entirely at the investors own expense and risk. Investtech is not responsible for any loss, either directly or indirectly, which arises as a result of the use of Investtechs analyses. Details of any arising conflicts of interest will always appear in the investment recommendations. Further information about Investtechs analyses can be found here disclaimer. The content provided by Investtech.com is NOT SEC or FSA regulated and is therefore not intended for US or UK consumers.

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