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An overbought/oversold indicator is a type of indicator which seeks to determine when equity or commodity prices have moved too fast and too far in either direction. An overbought/oversold indicator can be applied to a single issue, a defined group, or to an entire market. An overbought/oversold indicator is a technical analysis tool. Typically when an overbought/oversold indicator signals that a stock has risen too fast (i.e. overbought) this is considered an indication to sell, and when an overbought/oversold indicator signals that a stock has dropped too much in price (i.e. oversold) this is then the time to buy. As with any analysis tool, an overbought/oversold indicator often provides the best results when used in conjunction with additional indicators. A few examples of an overbought/oversold indicator would be MACD, RSI, and stochastics. |
