When Should One Buy An Oversold Market?

By Lawrence G. McMillan

We have often used the phrase, “oversold does not mean buy.” It is probably one of the most useful phrases a trader can employ. Many a would-be bear missed almost the entire bear market of 2008 because it got immediately oversold in September 2008 and stayed that way all through one of the worst bear markets ever, that unfolded over the next couple of months. So, from an intermediate-term viewpoint, one must wait for confirmed buy signals before stepping in front of a bear market roaring downhill.

Having said that, there are some very short-term oversold conditions that can be traded during market declines. It has been a long time since we’ve truly had any oversold conditions, but some arose last week. Over the years, we have published many articles detailing various trading systems. Some of these have to do with extreme oversold conditions. Since there haven’t really been many extreme oversold conditions in a long time, it’s possible that you may have forgotten about these indicators. A few of them came to the forefront this past week, issuing successful short-term buy signals.

Read the full article (published on 8/7/14) by subscribing to The Option Strategist Newsletter today. Introductory 3 month trial subscriptions are available for only $29.