Fubotv Inc FUBO shares are moving higher Thursday. After becoming oversold, the recent downtrend may have ended. A new uptrend may be forming.
Our team of technical analysts has made it our Stock of the Day.
The term oversold refers to a stock's momentum. Momentum is a measurement of the distance it has moved between time period A and time period B.
There are dozens if not hundreds of ways to measure momentum. These are called momentum indicators or oscillators.
Many new traders put a large number of these indicators on their charts. They think that more is better and they will have a good chance of identifying low-risk trading ideas.
But it may make sense to only use two or three of these indicators, master them and learn their nuances. For example, the lower part of the chart is the Relative Strength Index (RSI) momentum indicator.
Indicators usually have default settings. The default of the RSI is to measure the amount a stock has moved over 14 time periods.
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Between time period A and time period B, 14 days later, a stock may make a huge move up or down and then reverse and end up at the same price the measurement started at. Because RSI measures the difference between the prices between A and B, it will not account for these large movements.
This means the indicator may show a stock's momentum to be neutral when it is actually overbought or oversold.
RSI also has thresholds to identify overbought or oversold conditions. The default threshold for being overbought is exceeding the 70 level on the right side of the chart. The default setting for being oversold is when RSI drops to 30 or below.
Sometimes, the default settings can provide accurate signals. But sometimes traders can use different settings to obtain better results.
As you can see on the chart, when the RSI for Fubotv drops to 35, it is oversold. Since May each time this happened was a good time to buy. The RSI never reached 30. If a trader used the default settings, they would have missed these trades.
The “personality” of Fubotv is to be oversold when RSI reaches 35.
Instead of using a large number of momentum indicators, a trader may have better results if they only use a few and learn their nuances. The chart of Fubotv is a good illustration of this.
Photo: Courtesy of FuboTv.
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