When we apply "overbought" as a market indicator, it is supposed to offer us
indications for the current market stage and whether it is a sound idea to buy or sell. What exactly does the
term "overbought" mean and how can it be applied to achieve sound trading?
In general, the term "overbought" is used to describe a situation where the value of the stocks has increased excessively and have become too expensive.
"Overbought" is often defined as the point at which prices have moved up too far and too quickly. If the market is considered overbought, experts will start to sell.
When market prices increase in a short period of time, skyrocketing too far, the market tends to become overbought. This market stage indicates that a large number of high-priced shares are being transferred from one group of market participants to another. Using a lot of buying power on these transfers, the number of buyers who are willing to keep buying at such high prices becomes exhausted. They are not willing to pay anymore- the market has reached a critical point and the trend is for a reversal.
In brief, the market is viewed as overbought when a particular indicator has reached a certain level.
Free charting webinar
Mon, Nov 18th, 2013 12:00 PM - 1:00 PM EST
During the 60 minute session Paul Coghlan, founder of Coghlan Capital, looks at current charts for currencies, precious metals, US indices, highlighting turns and low risk entry points using the Median line analysis methodology.
Median line analysis reduces risk and increases the chartists ability to see trend direction, trend
strength and highlight entry and exit levels.
Seats are limited so be sure to reserve your spot today. The webinar will be recorded, by signing up you'll receive an email with the webinar replay afterwards.