Overbought is a technical analysis term describing a stock which has risen too far too fast. Traders typically assume that there will be a correction in the stock price. There are many formulas used to determine if a stock is overbought. Most involve oscillators, such as the relative strength index.
This information is seldom used by itself. Instead a trader will typically check that a stock is not overbought to confirm a buy signal.Back to Glossary Index