Overbought
Overbought is a financial term used to describe a situation in which the price of a security has risen to a level that is considered to be too high relative to its intrinsic value. It is a technical analysis term that is used to indicate that the security is overvalued and may be due for a correction. Overbought conditions can occur in any market, but are most commonly seen in stocks, commodities, and currencies.
History of Overbought
The concept of overbought has been around for centuries, but it was not until the late 19th century that it was formally recognized as a technical analysis tool. In the early 1900s, Charles Dow, the founder of Dow Theory, developed the concept of overbought and oversold conditions. He believed that when a security was overbought, it was likely to experience a correction in the near future. This theory has been widely accepted by technical analysts and is still used today.
Overbought conditions can be identified by looking at the price action of a security. If the price has risen significantly in a short period of time, it is likely to be overbought. Other indicators, such as the Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD), can also be used to identify overbought conditions.
Comparison Table
| Indicator | Overbought | Oversold |
|---|---|---|
| Price Action | Price has risen significantly in a short period of time | Price has fallen significantly in a short period of time |
| RSI | Above 70 | Below 30 |
| MACD | Above 0 | Below 0 |
Summary
Overbought is a financial term used to describe a situation in which the price of a security has risen to a level that is considered to be too high relative to its intrinsic value. It is a technical analysis term that is used to indicate that the security is overvalued and may be due for a correction. Overbought conditions can be identified by looking at the price action of a security, as well as indicators such as the Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD). For more information on overbought conditions, visit Investopedia, The Balance, and Investing.com.
See Also
- Oversold
- Relative Strength Index (RSI)
- Moving Average Convergence Divergence (MACD)
- Support and Resistance
- Trendlines
- Price Action
- Technical Analysis
- Chart Patterns
- Volatility
- Momentum
