What Happens When Stock Markets Are Oversold?

Welcome to our video on "What Happens When Stock Markets Are Oversold?" In this video, we will discuss the concept of oversold in the stock market, what it means, and what kind of returns you can expect when the market is oversold.

What oversold means to stocks.

Before we begin, we would like to remind you that our webpage academy has the best trading and investing strategies that you can use to improve your returns in the market.

To understand oversold, you must first understand the principle of mean reversion. Mean reversion means that strong deviations from the trend will eventually revert to the mean and move in the opposite direction.

In statistical terms, oversold occurs when the market experiences a weak period with falling prices, which could be days, weeks, or months. The duration depends on your trading timeframe, but it is crucial to have a clear definition.

To illustrate our point, we will use the RSI indicator to formulate a trading strategy to identify oversold conditions. Our backtest shows that when the 3-day RSI is below 20, and we sell after N days, we can expect higher returns in the short-term than any random day.

However, it is important to note that when stock markets are overbought, we can expect weaker returns than average over the next few days. But in the long term, returns gravitate toward the average returns.

Our backtest shows a steady upward growth in equity, with our equity growing from $100,000 to $1.3 million during the period. The annual return is 9.14%, even though we are invested just 16.8% of the time, indicating a risk-adjusted return of 54%.

In conclusion, understanding the concept of oversold is crucial to navigating the market's complexities and achieving improved returns. We hope that with this knowledge, you can make better decisions and achieve your goals in the market. Don't forget to subscribe and like our video to support us and stay updated with our latest content. Thank you for tuning in, and we'll see you in the next one!

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You can read more about it here:
https://www.quantifiedstrategies.com/what-happens-when-stock-markets-are-overbought

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