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Overbought

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Table of contents
    1. 0.2. How Overbought Conditions Are Identified
    2. 0.4. Why It Matters in Trading

Overbought refers to a market condition where an asset is believed to be trading above its intrinsic value, often after a rapid price increase. It suggests that buying pressure may have peaked and a price correction or pullback could follow.

How Overbought Conditions Are Identified

Technical traders use indicators like the Relative Strength Index (RSI) to spot overbought signals. An RSI above 70 often indicates an asset is overbought, suggesting it might be due for a downward move.

Why It Matters in Trading

Recognizing overbought conditions can help traders avoid entering at unsustainable highs. It’s a tool for timing exits or planning short positions, especially in volatile crypto markets.