Stocks that are in oversold situations typically sell at prices that are well below true value. So what do you do when a stock that you hold suddenly becomes oversold? The first thing that you need to do is do not panic. The reality is that you can use an oversold situation to generate profits from your trades. This is true even if you already hold the stock. The key is to be able to identify when an oversold situation occurs so that you can profit from it.
When you already hold a stock that suddenly becomes oversold, the first step is to try to understand why the stock is oversold. In most situations, stocks become oversold because the market overreacts to what it perceives as bad news. An oversold situation is usually results from panic selling. You can use technical indicators to determine if this is the case, but common sense often prevails. If you determine that your stock is oversold, the best solution is to you buy the stock down. This means that you buy more of the same stock at the lower price, which lowers the total average price that you paid for that stock. When the stock increases in value so do your profits.
If the stock is under heavy pressure and you determine that the price per share will fall a lot more, then it may be best to simply sell the stock and cut your losses. However, if you are in it for the long haul and can ride the waves you should hold your position. Just remember that we all win some and lose some on occasion, so don’t be afraid to cut your losses and move on when you have to.