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What are Overbought Stocks?

This article was posted on Aug 13, 2009

Overbought stocks are Identified using Relative Strength Index .Relative Strength Index (“RSI“) is a financial technical analysis momentum oscillator measuring the velocity and magnitude of directional price movement by comparing upward and downward close-to-close movements. It was first introduced by Welles Wilder in an article in Commodities (now known as Futures) Magazine in June, 1978.

The Relative Strength Index is a price-following oscillator that ranges between 0 and 100. It is a mathematical measure that can indicate whether a particular stock is being undervalued or overvalued.

oversold stocksFor Instance, consider REI Agro on of the most popular stocks on NSE. Rei Agro was trading around 66rs in end of July’09 with an RSI around 95-100, this indicated that the Stocks is highly Overbought. Once the RSI crossed 70 on 31st July’09, the stock dipped from 67rs to 45-47rs within a matter of few days.

This is very helpful, as it helps a Trader to know when to buy a stock. It should also be remembered that the stock might trade in the Oversold (below 30) zone for any number of days, sometimes even months. While the general wisdom is that the RSI of an overvalued stock is 70 or greater and the RSI of an undervalued stock is 30 or less, the novice trader may want to use a broader range, like 80 and 20 to avoid acting prematurely.

Just because an RSI hits 30 or 70 doesn’t mean it is about to turn the other way. With RSI values, it is a good idea to watch the volumes traded when the RSI “sticks” around 30 or 70 for a while. That will help determine whether traders are starting to book down profits or whether interest in buying a low RSI stock appears to be increasing.

On NSEGUIDE we provide you with a list of Overbought Stocks that have a falling RSI, i.e the RSI of the stock has crossed below 70 levels, and seems that the stock might see some downtrend. This list displays all those stocks who’s RSI on the previous trading day was above 70, and the current RSI is below 70. This indicates that the RSI of the stock is falling and the stock looks weak Technically.

15 Responses

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  1. gulzar Says:
    January 31st, 2010
    Posted at: 7:14 pm

    hello sir,

    kya ourbougt stock hai to woh price niche avage aur oursold sotck hai to kya price upar jayege...


  2. jugal parik Says:
    March 22nd, 2010
    Posted at: 8:30 pm

    sir,ibrealest may kya kiya jaye.AndAGAR NIFTY 5310,,,,,,5350 JATA HAY TO KONSA INDEX YA KOI SCRIPT SHOTKIYA JAYE


  3. Jimish Shah Says:
    April 12th, 2010
    Posted at: 5:13 pm

    I got the concept of RSI and I have gone through one or two example as well. But there is one doubt - what is the period to be taken into account in order to assess the overbought/oversold situation
    One thing to be kept in mind while answering this question is that I am interested in intraday calculations only
    Thanks


  4. sunil mahendru Says:
    August 26th, 2010
    Posted at: 7:25 pm

    what are the calculations to know the supports and resistances on daily chart.


  5. preetigawande Says:
    October 15th, 2010
    Posted at: 3:48 pm

    how can we calculate RSI?


  6. m.yusuf Says:
    June 19th, 2011
    Posted at: 12:56 pm

    hello sir kartik@cb aap ne chartmein bataya hai ke over boughtstock mein RSI niche ki tarf aarahi he humko kya samja jaye ke stock niche kitaraf aayega aur RSI UPPAR KITARF JA RAHI TOKYA STOCK KO UPPAR JANA CHHAIYE ISKI HUM KO SAMAJDIJYE THANKS


  7. msrinivas Says:
    June 23rd, 2011
    Posted at: 8:22 pm

    what are the calculations to know the supports and resistances on daily chart.


  8. Sunny Barai Says:
    September 26th, 2011
    Posted at: 11:13 pm

    This is a very useful indicator and it is being explained very simply with an example, so i enjoyed reading ur explanation i am interested in knowing more abt the analysis so pls upgrading the indicators explanation


  9. m srinivas Says:
    November 24th, 2011
    Posted at: 8:27 pm

    this is very good example how the RSI will help us to buy or sell the stock
    please explain for intraday charts in that how to find out the RSI


  10. m srinivas Says:
    November 24th, 2011
    Posted at: 8:29 pm

    where can i get intraday charts if anyone knows please tell me


  11. CB Says:
    November 24th, 2011
    Posted at: 8:38 pm

    Hi m srinivas, you can check on www.chartink.com


  12. Rahul Says:
    February 15th, 2012
    Posted at: 12:35 pm

    Hello Sir !
    I want to know how i can find RSI of any stock . Plz suggest me through email by perfect example . My email id is sirjee.s22@gmail.com


  13. CB Says:
    February 15th, 2012
    Posted at: 12:46 pm

    Hi Rahul, you can view rsi here: http://nseguide.com/charts.php?symbol=NIFTY


  14. A Siva Says:
    October 12th, 2014
    Posted at: 5:04 pm

    What are the items which will change the RSI direction?


  15. CB Says:
    October 12th, 2014
    Posted at: 6:59 pm

    Hi A Siva, price movement (upside or downside) changes the value in RSI. below is the formula: http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:relative_strength_index_rsi


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