Trading in BlackBerry Limited (NYSE:BB) is quiet on Friday. The shares have gained more than 200% in just two months.
But they are extremely overbought and many traders are anticipating a reversal. This is why BlackBerry is the Stock of the Day.
• What is going on with BB stock now?
Most of the time, a stock stays within its typical or average trading range. If a stock is trading sideways in this range, it means the shares are in equilibrium. Unless news comes out, there probably won’t be any tradeable moves.
But if a stock is out of equilibrium, it could move and create profit opportunities.
For example, BlackBerry is overbought. This means it is trading above its typical or usual range. This could draw sellers into the market, who will be anticipating a reversal or move lower.
Their selling could put downward pressure on the stock.
There are many tools that traders can use to determine if a stock is overbought. Three of them are on the lower part of the chart.
One problem some newer traders have is using too many indicators. They believe the more indicators used, the better their signals will be.
Veteran traders understand these indicators are just various ways of measuring the same thing. They only use a few indicators and master them. They try to keep it simple.
The Relative Strength Index (RSI), Stochastics and the Commodity Channel Index are three popular indicators.
As you can see, they all appear to be similar. They all indicate overbought conditions. There is no reason to view all three of them.
When stocks are overbought, savvy traders anticipate reversals. But they don’t try to get the top. They know it’s an almost impossible thing to do.
Instead, they wait for the reversal to start before taking a position, because this will put the odds more in their favor.
Regardless of the indicator that is used, BlackBerry is very overbought and may be on the verge of a reversal.
Photo: Shutterstock
