Overbought

AAA

DEFINITION of 'Overbought'

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 is generally interpreted as a sign that the price of 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 of time is often 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 or the money flow index to identify securities that are becoming overbought.

An overbought security is the opposite of one that is oversold.

RELATED TERMS
  1. Money Flow Index - MFI

    A momentum indicator that uses a stock’s price and volume to ...
  2. Price Persistence

    The tendency of a security's cost to continue moving in its present ...
  3. Scale Out

    The process of selling portions of total held shares while the ...
  4. Pullback

    A falling back of a price from its peak. This type of price movement ...
  5. Relative Strength Index - RSI

    A technical momentum indicator that compares the magnitude of ...
  6. Stochastic Oscillator

    A technical momentum indicator that compares a security's closing ...
RELATED FAQS
  1. Why is the Toraku Index important for analysts of the Tokyo Stock Exchange?

    The Toraku Index is a technical indicator for the Tokyo Stock Exchange that compares the number of advancing versus declining ... Read Full Answer >>
  2. What are the best technical indicators that complement the Price Rate Of Change (ROC)?

    Some of the best technical indicators to complement a trading strategy using the price rate of change, or ROC, are moving ... Read Full Answer >>
  3. What is the advantage of using the relative strength index (RSI)?

    A major advantage of using the relative strength index (RSI) is that it ultimately indicates the overbought (70) and oversold ... Read Full Answer >>
  4. What's the difference between the coverage ratio and the levered free cash flow to ...

    Coverage ratios focus on a company’s ability to manage its debt, while the levered free cash flow to enterprise value ratio ... Read Full Answer >>
  5. How can I use market capitalization to evaluate a stock?

    Market capitalization represents the market value for an entire company. Investors can compare market cap to financial data ... Read Full Answer >>
  6. What are the advantages and disadvantages of using systematic sampling?

    As a statistical sampling method, systematic sampling is simpler and more straightforward than random sampling. It can also ... Read Full Answer >>
Related Articles
  1. Active Trading Fundamentals

    Confirming Price Movements With Volume Oscillators

    Use this indicator to validate a change in price direction and moving averages.
  2. Technical Indicators

    The Basics Of Money Flow

    Learn how this indicator uses both price and volume to record a more complete picture of price action.
  3. Options & Futures

    What Can Traders Learn From Investors?

    Discover tips from a long-term strategy that can help you make better short-term trades.
  4. Forex Education

    Find Forex Profit With The RSI Rollercoaster

    This high-reward setup will provide plenty of ups and downs before a big climb.
  5. Active Trading

    An Introduction To The Relative Strength Index

    Learn the difference between relative strength and the relative strength index, a frequently used technical analysis oscillator.
  6. Forex Education

    Premier Stochastic Oscillator Explained

    This oscillator has been used since the 1950s by traders and investors to anticipate areas where the market may change direction.
  7. Forex Education

    Schaff Trend: A Faster And More Accurate Indicator

    The Schaff Trend Cycle Indicator is forward-looking and generates signals much faster than old indicators like the MACD.
  8. Active Trading Fundamentals

    Finding Short Candidates With Technical Analysis

    Learn how to distinguish tops and bottoms in the equity market when short selling.
  9. Active Trading

    Tales From The Trenches: A Simple Bollinger Band® Strategy

    Spot extreme short-term price drops and profit on the rebound.
  10. Fundamental Analysis

    What is Quantitative Analysis?

    Quantitative analysis refers to the use of mathematical computations to analyze markets and investments.

You May Also Like

Hot Definitions
  1. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  2. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  3. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  4. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  5. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
Trading Center