Overbought

Overbought

Used in the context of general equities. Technically too high in price, and hence a technical correction is expected. See: Heavy. Antithesis of oversold.

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overbought

Of, relating to, or being a stock market that has risen very rapidly in the recent past and is likely to suffer short-term price declines in the near future. Determining whether a market is overbought is difficult and is subject to individual interpretation.

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Overbought

In technical analysis, describing a security with too high a price. This means that the technical indicators on the security do not justify its current price. Technical analysts may recommend selling overbought securities, as they are due for a price correction. See also: Oversold.

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Overbought. When a stock or entire securities market rises so steeply in price that technical analysts think that buyers are unlikely to push the price up further, analysts consider it overbought. For these analysts, an overbought market is a warning sign that a correction -- or rapid price drop -- is likely to occur.

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Overbought

What Does Overbought Mean?

(1) A situation in which the demand for a certain asset unjustifiably pushes the price of an underlying asset to levels that do not support the fundamentals. (2) In technical analysis, this term describes a situation in which the price of a security has risen to such a degree— usually on high volume—that an oscillator has reached its upper bound. This generally is interpreted as a sign that the asset is becoming overvalued and may experience a pullback.

Investopedia explains Overbought

(1) An asset that has experienced sharp upward movements over a very short period often is deemed to be overbought. Determining the degree in which an asset is overbought is very subjective and can differ between investors. (2) Technicians use indicators such as the relative strength index, the stochastic oscillator, and the money flow index to identify securities that are becoming overbought. An overbought security is the opposite of one that is oversold.

Related Terms:
• Law of Demand
• Oversold
• Relative Strength Index—RSI
• Stochastic Oscillator
• Technical Analysis