Using the overbought and oversold criteria to help you determine how to trade an asset is a great way to make short term profits, especially within the binary options markets. The trick is to knowing what these terms actually mean when applying it to an asset, and whether or not the label is fitting for the particular situation. For example, a company might fit the overbought definition on paper, but because they have such an exciting new product, they might not be overbought at all, and their stock price is likely to keep going up for the time being
Buy or Sell
Overbought stocks tend to gain the most notoriety right around the time that a bubble bursts. Consider the auto industries a while ago, as well as financial stocks back around 2008 and 2009. Some analysts see this happening–hopefully on a smaller scale–in the tech industry right now. It makes sense, especially if you think back to the late 90s and early 2000s when the dotcom bubble burst. A lot of companies that had public stock offerings went belly up because they didn’t have the fundamental attributes to keep them at the price level they were being traded at. This is, unfortunately, a common occurrence in the stock market. A sector catches fire and prices all over go way up, even within companies that don’t deserve to have this happen based upon their numbers.
So, what do these analysts see happening? Right now, tech stocks, like Apple, Google, and Microsoft, are extremely popular because they offer a great product. Other companies don’t have the financial clout to match these bigwigs, but they are still seeing success. These companies are not in a good situation, and a price reversal could easily happen once reality catches up to them. Companies like Twitter and Facebook stand a lot to lose just because they are newer stocks, have been walking a very fine line to stay ahead of predictions, and are in a quickly evolving subsector of the tech industry–the social media sector.
On the other hand, there are many companies that are definitely oversold right now, meaning that their prices could easily go up when traders catch on. Many of these are not as big as the overbought companies, but there are some binary options brokers that offer them. Companies like Citrix, Intuit, and SanDisk all have great products, a strong foothold in their respective subsectors, and have low prices based upon their fundamental data.
Figuring out how to time these trades correctly can be tough. Usually, if you are trading in the binary market, the best way is to wait until the movement is imminent or already in action, and take a short term position on them. A lot of these things require patience. For example, if Twitter is going to drop in price dramatically, it probably won’t be for a couple weeks. They are announcing their earnings numbers on February 5th, and if it’s a disappointing number, you can bet that their stock price will drop quickly.
Be prepared for this if this is a trade you are looking to make. The beauty of binaries is that you can make big profits off of little trades, and this is an opportunity for that to happen. You need to be monitoring things, but action doesn’t need to be taken until you are sure that it will be a profit for you. February 5th, for example, is still a bit of time away, but staying on top of things is a good idea until then so that you can make the very best choice when the right time comes.