Debt Dictionary


Investment Dictionary -> Overbought

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.

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