>>25278339
they show a measure of volatility away from the average price. volatility is a mean-reverting phenomenon so in many cases, especially when there isn't a clear reason for a spike, price is very likely to return to the average, sometimes quickly sometimes more slowly. this is why it's important to combine it with FA to know what you're dealing with. if a stock dumps hard on something unrelated to the company (like the presidential election recently) it's a good buy. i generally do this with solid or blue chip stocks that i can DCA into below the 200 hour MA and even if wrong i can just hold until line inevitably goes back up again.
VIX is also a very useful tool that you should get to know. look at what it did during various crashes like 2008 and 2020 or the flash crash or 2010, you'll see it's quite accurate at predicting relatively where the bottom is at various levels that it may spike to, usually 40+.