This term is used when a security is believed to be trading more than its intrinsic value. The technical analysis of the security’s price history suggests that overbought describes a temporary movement in the price of the security and that the market will correct the security’s price in the future. Moreover, an overbought stock may be a good candidate for sale.
Overbought is the opposite of oversold, a market condition where an underlying asset has traded lower in price. But just like the term oversold, overbought is also subject to interpretation, depending on the indicator tools utilized by traders and analysts.
The overbought condition of a security is caused by any impactful news regarding a company, industry, or market.