Oversold is a subjective term. Because all traders and analysts use different instruments, some may see an asset oversold while others will see an asset drop even further.
Oversold conditions can persist for a long time, so prudent traders wait for the price to settle and move higher before buying.
Oversold conditions are identified by technical indicators such as the relative strength index (RSI) and the stochastic oscillator, among others.
Fundamentals can also reveal an oversold asset by comparing, for example, current values with previous values in terms of price/earnings (P/E) and forward P/E.
The Accumulation/Distribution Line (A/D) measures the supply and demand of an asset or security by looking at where price closed in a period range and then multiplying that by volume.
A bull trap means a reversal that forces market participants who are on the wrong side of the price movement to close positions with unexpected losses.
A bullish engulfing pattern is a candlestick pattern that forms when a small black candlestick the next day is followed by a large white candlestick whose body completely overlaps or engulfs the body of the previous day’s candlestick.
Capitulation occurs when a significant proportion of investors give in to fear and sell within a short period of time, resulting in a sharp drop in the price of a security or market against a backdrop of high trading volume.
Consolidation is a technical analysis term used to describe the price movement of a stock within a given range of support and resistance over a period of time.