Overbought Definition - Glossary

Overbought is a market condition where an asset’s price is higher than its intrinsic value, suggesting potential price reversal.

Overbought is a term describing a market condition where an asset’s price has risen significantly and quickly. This usually happens due to excessive buying pressure. Such conditions suggest the asset may be overvalued compared to its intrinsic value. Traders often use technical indicators like the Relative Strength Index (RSI) to identify overbought conditions. An RSI above 70 typically indicates this status. Being overbought doesn't guarantee an immediate price drop. However, it suggests that a price correction or reversal might occur soon. Understanding overbought conditions can help traders make informed decisions about entry and exit points.