The Definition of Overbought

Technically


  • Technical analysis would describe the situation of being overbought through use of indicators, the most popular being oscillators. The most popular indicator for measuring whether an asset is overbought is a stochastic. The asset is considered to be overbought when the stochastic oscillator has reached it's upper levels, usually the 20th percentile (above 80). When the oscillator is at its upper levels there could be a price reversal.

Fundamentally


  • Overbought from a fundamental point of view is a situation when a particular asset has increased in value groundlessly where the value of the asset does not reflect the available fundamental data.