What does the term Overbought mean?

Answer:
Overbought is a technical condition where prices

are considered to be too high and likely to decline. When an investment is thought to be overbought, it’s inferred that the price has risen too fast, too quickly and might be due for a correction.

Indicators and classifications are used to determine when an investment has reached the overbought status. The Relative Strength Index, or RSI, is one indicator used for analysis as is the Stochastic Oscillator. A sharp advance in a short time period indicates that an investment may be overbought. When the Relative Strength Index shows a reading of 70 or above and the Stochastic Oscillator exceeds 80, an investment is often considered to be overbought.

Overbought can refer to an individual investment or an entire market. When an analyst says that something is overbought, it is generally considered to be an opinion rather than a scientific fact. And while vigorous buying may have left the price higher than it reasonably should be and the price may indeed fall soon; it is not an absolute certainty that it will.


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