what is overbought 
overbought is a term used when a security is believed to be trading at a level 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 the opposite of overbought is oversold where a security is thought to be trading below its intrinsic value overbought explainedoverbought refers to a security which has been subject to a persistent upward pressure and that technical analysis suggests is due for a correction the bullish trend may be due to positive news regarding the underlying company industry or market in general buying pressure can feed on itself and lead to continued bullishness beyond what many traders consider reasonable when this is the case traders refer to the asset as overbought and many will bet on a reversal in price traditionally the standard indicator of a stock s value has been the price earnings ratio p e analysts and companies have used either publicly reported results or earnings estimates to identify the appropriate price for a particular stock if a stock s p e rises above that of its sector or a relevant index investors may see it as overvalued and pass on buying for the time being this is a form of fundamental analysis which uses macroeconomic and industry factors to determine a reasonable price for a stock the rise of technical analysis has allowed traders to focus on indicators of a stock to forecast price these indicators measure the recent price volume and momentum traders use technical tools to identify stocks that have become overvalued in recent trading and refer to these equities as overbought some traders use pricing channels like bollinger bands to spot overbought areas on a chart bollinger bands are positioned at a multiple of a stock s standard deviation above and below an exponential moving average when the price reaches the upper band it may be overbought 