Stock Options – The Greatest Wealth Building Tool Ever Invented

  • No Comments

It is a well known fact that serious investors seeking long term growth of capital have as their main objectives the two most basic goals in investing:

? to find an investment vehicle that would effectively preserve capital and minimize risk in the face of a fluctuating and constantly flexing economy
? the investment vehicle must provide better than decent yields in all economic conditions to promote constant growth of capital value.

With the stock market as the premiere choice due to its historical record of outperforming all other investments over time, people are increasingly turning to the stock market as their main investment vehicle for future capital growth. It is here where much higher rates of return can be made with a relatively small increase in risk to capital.

With thousands of books, manuals, internet sites, seminars and courses offering investment strategies and trading systems in the stock market and its derivatives, there are few, if any, that deliver the ideal investment vehicle sought by the long term investor in search of safety and high returns. Not only is there a near total absence of an ideal investment system but there are many that promise eye popping, mind boggling returns and, they are exactly that; mere promises.

Most of the trading systems offered are structured on strategies or activities that work when conditions are ideally suited to the program being peddled. Most of their successes are highly dependent on picking the right stocks at the right time. In other words you must be a good stock picker or use a stock picking service (for a high monthly fee) to select the right ones for you. Market timing is also an important factor in their systems. Again, you must be a good market timer or depend on a service that provides market timing signals (also for a high monthly fee). These supposedly high yield investment programs don’t say anything about how bad things can be when conditions go against their predictions. These programs do exactly as promised: great when the going is good but disastrous when the going is bad. Without doubt many have been taken by these so-called services and while an investor/trader may be successful for a while, the end result over a long period of time is always the same – no better than if you had done the selections yourself.

While there is no one investment system or vehicle that can be an answer-all to the various goals of various investors, there are some investment alternatives that can come close to satisfying the two basic needs of safety and decent returns. Diversified mutual funds have been touted as the answer to these basic needs. But over the years these funds have shown that during downturns in the economy they perform just as badly as the whole investment market in general. And, over the long term, many of these diversified funds have failed to even match market performance in general, much less outperform it.

Enter market derivatives with emphasis options.

Trading in stock options has become very popular with institutional investors as well as private individuals as a sound money management system supplementing their investment portfolios. The ability of stock options to give the investor a wide range of choices is what has made the options market grow considerably over the last two decades. To quote one options expert: “Stock options are the greatest wealth producing tool ever invented on this planet. . . . if you know how to use them”.

The key element of this statement is: . . . if you know how to use them.

For many people the mere mention of stock options, sends shivers up their spine. They look at options as synonymous with great risk. But isn’t driving a car very dangerous for one who doesn’t know how to drive? The ability of stock options to give the investor a wide range of choices in stock market investments is what has made the options market grow by leaps and bounds over the last twenty years. Statistics compiled by the Options Industry Council, a group that educates investors about options, show that volume in options trading has risen tremendously in recent years. Further, studies show that individual investors make up 60% of the market.

For the individual who has sufficient funds and is looking for more than a decent return on his capital and with controllable risk, stock options may be the answer.

There are dozens of option trading systems being employed by individual investors and institutions. Each system is designed to accomplish a specific investment goal. A financial institution may use long put options to hedge its winnings in stocks that have appreciated in value. Another investor may buy call options instead of stocks to enter a position in a security that has caught his fancy. Still another may sell calls against his stock holdings to generate income from his stock position, or what is popularly known as covered call writing.

Of the dozens of option trading systems there is one that can be carried out as a long term investment program offering a fair degree of safety and consistent high returns over time, thus satisfying the investor’s two basic needs of safety and return.

This is the selling of uncovered or naked options.

But wait! Is it not said that selling naked options carries the risk of unlimited losses? Isn’t this a contradiction?

Indeed selling naked options when done carelessly and without a disciplined strategic program is extremely risky!

But by using a carefully planned and disciplined system of trading, the so-called “unlimited risk” factor in selling options can easily be conquered. There is a three-pronged trading strategy being used by one successful options trader that is proving to be a consistent winner in all market conditions. It is a trading technique that couples naked option selling with a modified ratio credit spread and the use of the roll over feature. While naked option selling has acquired a bad rap of being highly risky, this three-pronged trading strategy allows the trader to defeat the risk. Not only is the system able to substantially reduce the risk, it also offers one the ability to become a savvy investor/trader without having to depend on picking the right stocks or timing the market.

It involves utilizing the system in any market condition using only one or a few stocks, ETFs or indexes (the latter two are more effective). One need not worry about finding the right stocks or timing the trades. The fact remains that stocks behave, more often than not, in crazy and irrational ways so that one can almost say that consistently choosing winning stocks is as good as a random walk down Wall Street. Rather than be proactive and try to predict and time the market, as many try to do, this three-pronged investment system is reactive. The prescribed trades are done in reaction to how the market has moved, not in anticipation of its future behavior.

This three-pronged trading system does not promise quick profits or mind boggling yields but steady annual returns in excess of 30%. Many are averaging returns of 50% to 60%. It would be prudent to say that in times of deep downturns the system may not deliver the promised returns but it will hold its own and will definitely outperform the market.

One options trader that has mastered this three-pronged trading technique has decided to share his knowledge of the system by writing an e-book on its methodology. Borrowing from that quote about options being a great wealth producing tool he has aptly titled his work: STOCK OPTIONS: THE GREATEST WEALTH BUILDING TOOL EVER INVENTED. In it he details the step by step methodology of this trading technique and gives an exhaustive series of sample trades covering several months of transactions. It shows the effectiveness of the system in an up market, down market and horizontal market using only one ETF stock. To this day the writer continues to use only one or two ETFs in all his options trades and he includes a web page that shows his current and actual trading results month by month on an ongoing frequency.

Still Too Early to Cheer Housing Starts

  • No Comments

We recently learned that housing starts “beat” expectations in November, rising 3.9% over the previous month. I am not a housing expert, but I thought increasing supply in an already oversaturated market with depressed demand is a bad thing. However, a recent Bloomberg article discusses why more homebuilding is a positive for the economy as it would add a significant amount of jobs to the economy. While this may be true, I believe improvement would be offset by a continuing decline in home prices.Home prices still falling:- Despite the dubious calls that say housing has bottomed or that real estate is the buy of the decade, the fact of the matter is that home prices are still falling in most areas of the country. The most recent Standard & Poor’s Case-Shiller composite home price index showed home prices fell in all 20 cities that the index tracks in October from the previous month. This was even worse than September, when only 18 of 20 metro areas posted declines from the previous reading. In October, the index fell by 1.3% from September, which is good for 0.8% decline year-over-year. That is pretty substantial, folks, especially in the face of the declines that have already occurred.Zillow Real Estate Research estimates that by the end of the year, home prices in the United States might fall by more than $1.7 trillion, which is also significantly higher than the $1 trillion drop last year.Another huge hurdle for the industry is the still-increasing number of foreclosures that add to the housing inventory. In fact, in the third quarter, more than 288,000 homes were foreclosed on a record high that was an increase of 7% over the previous three months and 22% year-over-year increase. The number of foreclosures in the fourth quarter is expected to decline as a result of banks like Bank of America (NYSE: BAC), JP Morgan (NYSE: JPM), and PNC Bank (NYSE: PNC) placing a temporary moratorium on foreclosures because of the Robo-signer fiasco. However, the banks’ issues do not change the fact that many homeowners are still underwater and at risk of foreclosure.Conflicting views on housing:- Some turned more bullish on housing and the homebuilders in particular when Toll Brothers (NYSE: TOL) recently reported a profit after 11 straight quarterly losses, even though the profit was primarily because of tax benefits from a reversal of a valuation allowance. Nonetheless, the company’s CEO said he expects to see improvement in the market in 2011 and that 2012 will be a “big year.”We also recently heard from another good indicator of the housing market: home improvement retailers Home Depot (NYSE: HD) and Lowe’s (NYSE: LOW). While both companies posted decent quarters thanks to cost-cutting and operational efficiencies, neither of their CEOs was bullish on the housing market and said consumers have been slow to spend money on their houses.Lowe’s CEO Robert Niblock does not yet see any upside in the housing market and believes that home prices will continue to fall next year.No home improvement:- The number of new homes being built does remain at historically low levels, which I believe is a good thing as the data I reference shows a housing market in which stabilization has still not occurred and home prices that on average are not poised to rise in the near future. While opinions may differ, I believe the time is still not right to cheer an increase in housing starts. Perhaps the headline this month should read that housing starts “missed” expectations. At least then I could get more bullish on the housing sector.

3 Easy Ways to Boost Your Stock Market Profits

  • No Comments

People always want to know how they can improve their profits in the stock market. And I keep telling them it’s simple. There are three easy things you can do right now to boost your returns. It’s so easy.It really is.Here are the 3 steps you can take:1. Only buy the best ETFs – ones that are already going up 2. Avoid high fees 3. Keep a risk balanced portfolio.That’s it. Those are pretty easy things you can implement immediately. If you can do this, you can make money in the stock market.

The rules for successful stock market trading aren’t hard. But despite that, the average 401k investor in the stock market gets creamed by the stock market.A formal study from the stuffy Journal of Pension Benefits documents the horrible performance of most investors. Here’s what it says:”The elephant in the room that no one seems to want to discuss is that individual investors as a whole do a poor job managing their own is, by and large, a recipe for has long been known that individual investors don’t typically fare well in their efforts at do-it-yourself investing.”This notion has been validated by numerous studies, including one by Dalbar, Inc., which revealed the staggering margin by which the average individual investor trails the returns of the broader market.

Here’s what Dalbar, Inc. says:”Wow. Nobody wants to talk about it, it’s that bad. When the stock market only makes 8% per year, giving away 6% eats up almost all of the possible returns. In fact, it’s possible you’ll get a better return from Social Security than you will from the stock market.”Fortunately, there is help.Improving Your Returns with True DiversificationThere is more to making money than just blindly hopping on the trends.If you want to really make money, you need to take active control of your can’t just sit back and gripe about your lousy returns when you’re not doing anything to prevent best way to improve the performance of any trading strategy is to balance the risk taken on each trade.Diversification works wonders for increasing returns. But it only works when you actually diversify.Most people do not get similar exposure to the risk of their investments. They dramatically over-invest in some of their portfolio, and under-invest in others. It’s like only watering ?? of your garden but expecting it all to grow.To get great returns, you need to give each and every investment a fighting chance to make money for your portfolio. Each investment needs to be able to provide meaningful returns for you to make real money.

Many people split their portfolio 50-50 or 60-40 between stocks and bonds. This doesn’t work. It ends up being only slightly better than burning $100 bills in a fire. Why? Stocks are 3-4 times more volatile than bonds. All of the returns and risk are due to what happens to the stocks in the portfolio.The only way bonds will have equal impact on the portfolio is for the allocation to be 75% bonds, 25% stocks – or even higher.You can balance the dollar amount allocated to an ETF selection by the risk taken by each ETF. You can do this in your other accounts also.You can take into account how much risk each ETF has, and then adjust the amount of shares to trade. That way you know you get equal exposure to each of your investments. This came in extremely helpful this month for me because the month allocated extra dollars to real estate and preferred stocks,which have outperformed the S&P 500. That’s how true diversification can help you also.As a result, your system could be up about .5%, while the S&P 500 is down nearly a full percent. Instead of under-performing the stock market by 6% a year, your system can outperform the stock market, in this case by nearly 8% per year.

When you create a system to allocate your funds, your system should tell you exactly how many shares of each ETF to buy so you’re not under- or over-investing. Risk balancing works great for really pushing returns upwards. If you want to know the steps – and are a real math geek – here you go:1. Find ATR: Find the Average True Range (ATR) for each of your Stocks/ETFs 2. Find Volatility: Divide the ATR by the Price of the Stock/ETF 3. Invert Volatility: Take 1/(Step 2) for every stock Find Total Vol: Total up Step 3 for your entire portfolio 4. Find Percent Allocation: Divide Step 3 by the total given Step 4Step 5 will give you the percentage of your account that you should allocate to that investment. It’s a bit complicated, but you can do it. An easier way would be to have someone else do it for you. Either way, you can outperform the S&P and give your accounts the boost you want.Copyright ?? 2012 Trend Following 101

Gain The Expertise To Identify The Perfect Time To Buy Shares

  • No Comments

People invest in shares and most of them do not make enough profits in selling them because they do not know the exact time to buy shares. Having the expertise to understand the movements of the market and the trends which indicate the correct time to collect shares from the market will help you to when get a substantial profit when you sell. There are experienced people in the share trading circle, who are able to identify the right time to buy shares of a particular chip.

The main indicator is the stock market, which has its own ups and downs resulting from different pressure points on economy. The stocks may even slide down during a positive economic trend and may push up even in when the economy is experiencing dull conditions. In short, there is enough scope to collect shares when the market is weak by paying lower prices for them. However, the true value of shares cannot be estimated in this condition. The indications spell out a simple formula to sell when the market is high and buy shares when the market is dull.

Make a study and buy shares
Study the value of the shares you are interested in before you buy shares. Dividend estimation is a qualified measurement scale for knowing the value of a particular share. The dividend yield is to be computed on the current price of the share and the dividend declared for the next phase. The market goes down with low dividend yields and the mood of the investor is always in favor of a higher dividend to buy shares.

The market may appreciate – lower prices with higher dividends – and may respond positively to them in this situation. The dividend yield can make a long-term trend of shares and you can buy shares during this condition. The price-dividend declaration is another important aspect of estimating the market for a particular share. This is the dividend yield expressed in terms of percentage.

Dividends are taken out of the company’s earnings, but they do not fluctuate – unlike the earnings – and are always paid by the company to shareholders irrespective of the functioning of the company. When you are ready to make your investments and buy shares, you do not have to look at the earnings of the company. Instead, you must understand the dividends declaration from the company for your profits.

There is another aspect that you should also look into: the value of a share in the company?s book. This is the book value of a share of the company. It is estimated from the net worth of the company in relation to the number of shares. With the book value of a share, you are able to know the current condition of the price of the share – i.e., whether it is undervalued or overvalued. When the price of the share is low relative to the book value (or undervalued), you should buy shares in the situation. Conversely, when the price of a share is exceptionally high relative to the book value of the share, it is the right time to sell for profit.

Will This Great Stock Turn Around?

  • No Comments

While some U.S.-listed Chinese stocks are enjoying renewed enthusiasm from investors, many are not doing anything in this market. Business is great, but most investors still don’t have the appetite right now for highly speculative securities. This is not a surprise.

Case in point: Focus Media Holding Limited (NASDAQ/FMCN). This is one exciting company that is uniquely positioned in an industry that is flourishing in Asia.

I first wrote about this company in this column back in November 2006 and have been following it ever since.

Focus Media runs the largest advertising network in China, using flat-panel screens in all kinds of places from supermarkets to elevators. The company’s televisions provide the platform for big corporate customers to advertise directly to a wealthier, white-collar target market. Some of the company’s customers include Motorola, P&G, China Telecom, and Toyota.

November of last year was a turning point for the broader stock market, and for many U.S.-listed Chinese stocks like Focus Media. At that time, Focus Media hit a new record high of a split-adjusted $66.30 per share, more than double its price from a year earlier. Not surprisingly, this stock pulled back significantly with the correction and is now trading around $37.00 per share.

Of course, the company’s fundamentals haven’t changed and the stock didn’t move lower because of lots of selling. It pulled back more so from an absence of buyers.

The thing about investing in speculative stocks is that you never really know if or when the stock will take off. A company like Focus Media is an innovator in its industry and its stock is now much more attractively priced. The only question is: will the stock turn around? And if so, when?

Trading Commodity Futures – Intuitively Day Trading The S&p 500 And E-mini – Part 4

  • No Comments

Every trading market has its own special patterns and oddities that will communicate its intentions. Patterns don’t always work every time of course, but even that can be a clue of underlying extreme weakness or strength. Just like knowing a spouse well, learning to read your special market can pay dividends. Read on to learn moreā€¦

More Observations From My Trading Notes:

“After a BIG, major e-mini decline, wait for the secondary test ? the first spike is TOO EARLY ? the second test pays off faster and may even be a better buy. It?s also a chance to see if the ticks confirm a higher bottom, volume comes in and price action looks like the market is going much lower to scare the sheep. If this scary secondary low does not hold, then something is definitely wrong and the market is likely going MUCH lower afterwards.”

Yes, the old panic and double bottom. ?Scaring the sheep? is one of my favorite sayings with the e-mini market. The sheep usually herd themselves into the middle ranges. They love to buy and sell there to feel comfortable.

The middle is a nice place to enter at first, but actually, the risk is higher later. When the e-mini market swings hard to the rails, it always dumps some of the sheep out of the truck onto the road for the wolves to get. The other sheep are watching and hoping it won’t happen to them, also. They hold on tighter but some of them jump to their deaths anyway. That?s what you want to see. If you train yourself to be an extreme range commodity futures buyer and seller despite feeling this fear, then you are progressing. It’s an unnatural thing to do. That’s a good thing.

This fear is a good indication of an intermediate pivot point. It’s nice to be on the sidelines ready to enter. This is a great position in itself. You want to feel scared without even having your money in yet – that?s what you’re looking for. Feeling comfortable about entering an e-mini futures trade is a red flag, believe me. You want a ?shaky hand? on the mouse when it clicks. No one is so good and confident in their forecast not to feel fear, unless they are a market psychic (unlikely) or have nothing personal to lose. (more likely)


?Much patience is needed for a move to evolve, once entered.?
We?ve talked about this before. I guess I kept writing it down throughout my notes because I often violate it. In fact, if I read over the full fifty-five pages, I see themes that emerge. To become a better e-mini futures trader than you are now, you need to write this stuff down and constantly review it. I?m always amazed at how much I forget, even after reading it over and over.

But after a long time of reviewing, it becomes second nature and part of your instinctive intuition. That?s your goal. You want the lessons and rules you have observed over time to trigger something inside your body whenever an e-mini turning point is taking place. When it happens with me I feel this funny swinging of my head, like I?m getting into balance. I also get a fearful feeling knowing that I soon need to put myself at risk. Your own trading trigger will probably be different.

Effective, intuitive, discretionary, e-mini commodity futures trading is acting on your own internal signals when they occur in real time. (read that again) It’s not easy. If it was easy for everyone to learn, the market would not pay much for this skill now, would it?

Good Trading!

There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.

Online Stock Brokers

  • No Comments

ONLINE stock brokers: the experts of ideas

Oh! So you have heard about online trading. But are you aware of aviate experience of online brokerage. Well it?s not your fault if it sounds only faintly familiar. Technology has ensured that one is well acquainted and familiar with traditions of increasing technology while other may be left totally ignorant over the scene. Let me clear this concept.

Online brokerage is the amount charged from online traders to trade online in return of better assistance to deal in stocks. This brokerage is paid to brokers who act as facilitators of trading in stock exchange. Unlike, traditional way of trading, here a trader may trade directly but the firm or individual he is associated with has to be paid off. Obviously not every investor can afford the heavy duty direct licenses to trade in stocks.

Hence, these brokers are mediators to sort out that trading. They are not only mediators; they act as supporters for traders. They guide day trading concepts to ad up to better understanding and get optimized profits. They are experienced and provide their expertise to beginners and experts too.

Now the question arises from where these stock brokers can be contacted from. The answer lies in the laps of technology. Yes, they are available online. Most of today?s share brokerage firm posses their websites from where the details regarding their brokerage terms and past records are available.

Being a competitive brokerage, the situation gets biased to the investors. The brokerages offered are as low as $3 for each transaction. Deep discount brokerages serve a decent opportunity to grab to. A low as $1 and so is charged per trade that allows investor to cut off the brokerage expenses. These opportunities tend to increase the trading in stock market at low bites from the investments made.

Apart being acting as catalyst these firms provide useful tips to trade in stocks. These tips may include the forecasted mood of share markets and the expected fluctuation in the price of a share, hence, catering to the need of clearing the cloudy environment while investments.

For all these benefits, all you have to do is to go to the chosen firm?s website and get an account opened there. With in few clicks you can open your account to trade as enjoy the services provided by online brokers. Opening an account with a firm provides you to access the stock exchange on your PC as the relative software is uploaded by the members of those firm. For beginners, they generally provide guidelines of how to trade and how to use trade persisting software?s. The benefits of online brokers? lies in the fact that the useful tips are received sitting at your laptop trading from home.

However, few cautions have to be considered before opening an account with any firm. The past records and the brokerage rates are the most important to be analyzed. The amount of brokerage has to be paid with each transaction; hence, lower brokerage favors the traders. Moreover, the facilities and mode of transferring payments should also be checked so as to avoid any confusion in relative future.

As such, discount brokerages provided by the firm act as sheer combination of meaningful trade at low rates, however, these are generally offered to people with large turnovers, but no more grievance to this clause as increasing competition is letting the brokerage rates fall every time and letting even small investors enjoy the benefits of low commission rate online brokerages.

Commodity Futures Trading – What Is Your Trading Edge? – Part 3

  • No Comments

Finding your very own unique commodity trading edge is a worthwhile goal. Without one you are lost in the masses, struggling to push your head above the sea of expenses. Trading edges do exist, though for short periods of time. Psychological edges are more permanent. You need many. Read on to find how to go about finding yours.

It?s breathtaking to watch a certain trading method working well and then see the market find a way to destroy these same participants in one sharp move. An example is when commodity option traders are writing (selling) options over an extended period of time. They?re taking in premiums like fat cats. Happy. Quiet market. The percentages can be upwards of 90% accuracy selling way out-of-the-money futures options in a dull or choppy market. The profits are small, but consistent.

Then the day of reckoning arrives and a move way out of the standard deviation spikes like a lightning bolt. They drag some option writers out by their boots. A well known example was in 1998 when a famous money manager was selling thousands of out-of-the-money S&P 500 puts. The market took a free fall dive. He lost a big chunk of his $100 million+ managed commodity fund in a few days. I remember it well because a partner and I were long an eighty-lot of put options on the other side of his trade. We made the biggest score of our lives. But it had much to do with luck and being there at the right time. It happens at least once to everyone. Heck, just being born is the longest shot going.

Right now I love the S&P 500 futures contract (e-mini) day-trading game. I?ve traded it actively for the last twelve years. It pays to focus on one or two commodity futures markets and learn it well. This is the key to getting an edge when day-trading. Some day-traders can spread themselves out and apply similar techniques to many commodity markets. God bless them. But I find I need to learn all the patterns, habits, and idiosyncrasies of one market to be competitive. Just like doctors who specialize.

Can you imagine a heart surgeon trying brain surgery, or even doing plastic surgery? It?s the same with markets. The more you focus and specialize, the better job you can do competing against the best minds in the commodity world out there. I have some methods I will suggest in later articles to focus and better learn your favorite futures market. This doesn’t mean you can’t hold long-term positions of other commodities while day trading. You can do both, but for day trading itself, you should focus on only one or two markets.

As I?ve said before, it’s so important to train your brain to intuitively and subconsciously identify likely turning points as they occur. With practice, you will find signals going off in your body. It?s different for everyone. Your body will let you know when it?s time to put on or take off a commodity trade. But, it takes training and looking at the right indications with a trained mind. More to come in future articles.

Good Trading!

There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.

Trading Stocks Using The Rsi Indicator

  • No Comments

The RSI (short for Relative Strength Index) is a popular technical indicator with traders and investors because it is quite effective at showing overbought and oversold positions in a particular security. But how effective is it in reality and can it really be relied upon to trade stocks with any accuracy?

Well as with any technical indicator it should not really be used in isolation because it is only one indicator, but on the whole the RSI indicator is quite effective at indicating both overvalued and undervalued stock positions. There are, however, times when it is more effective than others.

For example, from an investment point of view an RSI that is indicating an overbought position, ie over the 70 level, doesn’t really mean too much when a share is strongly trending upwards because it could easily pull back slightly before accelerating even further ahead and becoming even more overbought. However an oversold RSI, ie below 30, on a bullish share that’s trending strongly upwards often acts as an excellent entry point.

Similarly when a stock is trending downwards you should be very careful about oversold RSI signals because just look at the recent market and you will see that prices have dropped substantially despite all the oversold RSI signals we saw on the way down. In a bearish market it’s a better strategy to look for overbought positions in weak stocks that are in a strong downwards trend and take short positions.

Overall I think RSI is a very useful technical indicator in general but it can be rendered useless in the face of a strong trend. If you are looking to catch the bottom of a stock you’re interested in buying that’s in a strong downwards trend, your best bet is probably to consult the longer term weekly or monthly charts. That’s because if the RSI is oversold on these time frames, then it’s a better more reliable signal than an oversold position on the daily charts. It also provides a better entry point for anyone looking to invest in a company for the long-term rather than a few weeks or months.

Of course you should also look at the fundamentals of the company in question as well including the financial accounts and earnings forecasts, PE ratios, etc, because you may find the RSI is oversold because the company is going bust so the price will fall even further. However once you’ve identified a good quality profit-enhancing company, the RSI can provide you with a strong entry point when in oversold territory, particularly if the stock is in an upwards trend.