How Extreme Oversold Markets Can Be Profitable

By: Chris Vermeulen | Sat, Aug 27, 2016
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The trading week was starting to look as though it was going to end without any excitement. Wow, did that ever change on Friday!

On Wednesday Aug 24th, the stock market sold off to a level which I consider to be an extreme oversold condition for the week. While I do have several criteria as to why and how I come to the conclusion, the chart and indicator below show me when the market is oversold and ready for a bounce.

The green shaded areas on the bar chart are oversold extremes. Wed, Aug 24th the SP500 closed at this extreme. The following day the market struggled to find support but eventually did with the big pop in price on Friday.

You will also notice the red line indicator near the top of the chart. This is a little volume ratio I use to help confirm when the market is getting overbought and profits should be taken.

S&P E-mini Futures 30-Minute Chart


Second Oversold Confirming Indicator - Price Spike

Not only was the market oversold based on my proprietary indicator above, but the market also flashed us a post-market price spike. I have talked about these many times before and how it's the market giving us insight into where the computers are likely to run the market or at least try to run the market in the next 48 hours. In less than two days the spike was filled for us to pocket another winning momentum trade.

S&P E-mini Futures 10-Minute Chart


Extreme Markets Conclusion:

In short, as traders we need to trade what see not think. It is easy to have market bias, meaning you want it to go in one direction and you favor your thinking and analysis that way. If you can completely avoid doing this, you will be highly profitable as a trader.

I see this time and time again, when the market gets oversold/overbought, or flashes us a price spike just before some news event. Its tough trading in front of pending news, but 80% of the time these moves play out just as expected.

The last big FED talk, gold flashed spike up a day before the news and it played out in a big way. This week both the SPY and GLD spiked up a day before and both reached their spike targets Friday big fast profits. I will post the gold spike on my blog this weekend.

 


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Chris Vermeulen

Author: Chris Vermeulen

Chris Vermeulen
President of AlgoTrades Systems
www.TheGoldAndOilGuy.com

10126 Hwy 126 East, RR#2
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Chris Vermeulen

Chris Vermeulen, founder of AlgoTrades Systems., is an internationally recognized market technical analyst and trader. Involved in the markets since 1997.

Chris' mission is to help his clients boost their investment performance while reducing market exposure and portfolio volatility.

Chris is also the founder of TheGoldAndOilGuy.com, a financial education and investment newsletter service. Chris is responsible for market research and trade alerts for of its newsletter publication.

Through years of research, trading and helping thousands of individual investors around the world. He designed an automated algorithmic trading system for the S&P 500 index which solves his client's biggest problem related to investing in the stock market: the ability to profit in both a rising and falling market.

AlgoTrades' automated trading systems allows individuals to investing using either exchange traded funds or the ES mini futures contracts. It is supported by many leading brokerage firms including:

- Interactive Brokers
- Trade MONSTER
- MB Trading
- OEC OpenECry
- The Fox Group
- Dorman Trading
- Vision Financial

He is the author of the popular book "Technical Trading Mastery - 7 Steps To Win With Logic." He has also been featured on the cover of AmalgaTrader Magazine, Futures Magazine, Gold-Eagle, Safe Haven,The Street, Kitco, Financial Sense, Dick Davis Investment Digest and dozens of other financial websites. His list of personal and professional relationships approaches 25,000, people with whom he connects and shares is market insight with out of his passion for trading.

Chris is a graduate of Seneca College where he specialized in business operations management.

Chris enjoys boating, kiteboarding, mountain biking, fishing and has his ultralight pilots license. He resides in the Toronto area with his wife Kristen and two children.

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