The following post is my personal view and may differ from other members.
Please refer to this page:
http://www.twonahalf.com/rsiintro.htm
There is a screen dump here. I have traded BHEL based on the indications of SOT, on the day where it is marked on that chart. One day ahead, the SOT had predicted a price point where BHEL would become oversold (2214.00), I bought the stock when it was trading at 2205, the stock went down to close at 2144. But from the next day onwards started going UP. I made some 5% in the stock in 5 days flat.
Why did I rely on the RSI levels? Firstly RSI is a very strong indicator and works very well for liquid stocks, secondly BHEL is an Index Stock. An index stock does not become oversold very soon, if it does, it doesn't remain at those levels very long, unless the story is absolutely BAD. Suzlon is a Nifty stock too, so one can take a call...
Once the people would have seen their EOD data at the end of the session, they would have realized that BHEL has become oversold, so buying was going to come in.
What was my advantage? My advantage was the SOT, which told me in advance at what price the stock was becoming oversold.
Having said that, there is
NO Guarantee that the stock will not further go DOWN. But that's the game of risk to reward, and I can take a risk in a NIFTY stock. I would have definitely not considered such a buy in the month of MAY when the carnage took place, but this time around it was OK because the overall market was UP.
For a safter trade, one would want to wait for tomorrow and see the volume action. If the volumes pickup, then one can take a position.
Regards
MANOJ T