Glossary Term

Overbought

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Overbought is a trading terminology that refers to a scenario where a security is priced much higher than its intrinsic value. It is generally used to describe a reflection of a short-term movement in the price and the expectation is that it will correct itself in due time. Analysts usually use price-earnings (P/E) ratios or technical indicators such as the relative strength index (RSI) to determine this specific behaviour. The reason behind this trend is usually pegged to good news and optimism concerning the specific stock or the market in general.

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What is overbought? A Traders Expert explanation

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