Oversold Bounce Strategy

What It Detects

Stocks that are:

• Oversold (RSI below 30)
• Still in long-term uptrend (above 200-day MA)
• Large enough to be liquid (market cap > $1B)
• Potentially ready for a bounce back

The Formula

Copyrsi(14) < 30 and c > sma(200) and market_cap > 1B

How It Works

1. rsi(14) < 30 - RSI below 30 indicates oversold conditions
2. c > sma(200) - Price still above 200-day MA (long-term uptrend intact)
3. market_cap > 1B - Large cap stocks with liquidity

When to Use

Best for:

• Bull markets with normal pullbacks
• Mean reversion trading (hold 3-10 days)
• Quality stocks temporarily beaten down
• Risk-defined entries

Avoid when:

• Bear market (catching falling knives)
• Stocks breaking long-term support
• Fundamental deterioration
• Low volume (can't exit easily)

Parameters You Can Tweak

Very Oversold (Extreme)

Copyrsi(14) < 25 and c > sma(200) and market_cap > 2B

• More extreme oversold level (RSI < 25)
• Larger caps only for safety

Earlier Entry

Copyrsi(14) < 35 and c > sma(200) and market_cap > 1B and c > sma(50)

• Less oversold (RSI < 35) catches bounces earlier
• Adds 50-day MA filter for shorter-term uptrend

Add Volume Confirmation

Copyrsi(14) < 30 and c > sma(200) and market_cap > 1B and v < sma(v, 20)

• Low volume on selloff (exhaustion)
• Wait for volume spike on bounce day for entry

Example Columns to Add

CopyPrice: c
RSI: rsi(14)
200MA: sma(200)
Distance from 200MA: (c - sma(200)) / sma(200) * 100
Chg%: roc(1)
Vol vs Avg: v / sma(v, 20)

Entry Strategies

Conservative (Confirmation)

Wait for:

1. RSI < 30 (scan finds it)
2. Volume spike day (accumulation)
3. RSI turns up (> 35)
4. Enter on first green day

Aggressive (Earlier)

1. RSI < 30 (scan finds it)
2. Price tests key support level
3. Enter immediately with tight stop

Exit Strategies

Take Profits:

• RSI reaches 50-55 (neutral)
• Price returns to 20-day MA
• 3-5% gain (typical bounce range)

Stop Loss:

• Price breaks below recent low
• RSI makes new low below 25
• 3-4% below entry

What to Watch For

Strong signals:

• Clean downtrend channel (orderly pullback)
• Holding key support levels
• Low volume on decline (no panic)
• Overall market stable or up

Warning signs:

• Breaking 200-day MA
• Accelerating decline
• High volume selling (distribution)
• Negative news/fundamentals

Common Mistakes

1. Fighting the trend - Only trade oversold in uptrends
2. No stop loss - "Oversold" can get more oversold
3. Holding too long - Take profits at RSI 50-55
4. Ignoring volume - Need volume confirmation for bounce
5. Averaging down - Don't add if first position fails

Variations

Quality Filter

Copyrsi(14) < 30 and c > sma(200) and market_cap > 5B and pe > 0 and pe < 30

Adds P/E ratio filter for profitable, reasonably valued stocks

Short-term Bounce

Copyrsi(5) < 20 and rsi(14) < 35 and c > sma(50)

Uses 5-period RSI for very short-term (1-3 day) bounces

Related Strategies

• Momentum Breakout - Opposite approach (trend following)
• Volume Spike - Confirm entry with volume
• MACD Crossover - Additional momentum confirmation

Pro Tips

• Best time: End of day scans, enter next morning
• Market context: Works best when SPY is also oversold but holding support
• Size smaller: Mean reversion has lower win rate than trend following
• Set alerts: Get notified when RSI turns up from oversold
• Chart patterns: Look for bullish divergence (price lower low, RSI higher low)