Definition of Overbought:
Overvalued owing to excessive buying at unjustifiably high prices.
Overbought is a term used when a security is believed to be trading at level currently above its intrinsic or fair value. Overbought generally describes recent or short-term movement in the price of the security, and reflects an expectation that the market will correct the price in the near future. This belief is often the result of technical analysis of the security’s price history, but fundamentals may also be employed. A stock that is overbought may be a good candidate for sale.
State of a security, or of the stockmarket, which has experienced an unexpectedly sharp price rise after a period of vigorous buying. Such security or stockmarket is said to be ripe for price fall because all those who wanted to buy have already done so. Opposite of oversold.
The opposite of overbought is oversold, where a security is thought to be trading below its intrinsic value.
How to use Overbought in a sentence?
- Ultimately, overbought is a subjective term. Since traders and analysts all use different tools, some may see an overbought asset while others see an asset that has further to rise.
- Overbought refers to a security with a price that's higher than its intrinsic value.
- Fundamental analysis can also be used to compare an asset's market price to its predicted value based on financial statements or other underlying factors.
- Many investors use price-earnings (P/E) ratios to determine if a stock is overbought, while traders use technical indicators, like the relative strength index (RSI).
- A healthy correction to an overbought market.
Meaning of Overbought & Overbought Definition