Market Concepts
Overbought and Oversold
Extreme market states and searching for potential reversal points.
1 min readUpdated: 2026-03-26
The Market as a Pendulum
Price in any market is a balance between buying and selling. The terms Overbought and Oversold describe moments when the scales have tilted too far.
- Overbought: The asset has been bought for a long time and strongly, the price has risen extremely quickly. Buyers are exhausted, a correction or drop is likely.
- Oversold: Selling has lasted too long, the price has dropped to the bottom. Sellers are finished, a bounce or rise is likely.
How to find these levels?
Traders use oscillator indicators to search for overbought and oversold conditions:
| Indicator | Overbought | Oversold |
|---|---|---|
| RSI | Zone above 70–80 | Zone below 30–20 |
| Stochastic | Zone above 80 | Zone below 20 |
| Bollinger Bands | Breakout above the upper band | Breakout below the lower band |
IMPORTANT: The market can remain overbought or oversold for a very long time. An asset being in these zones is not a direct signal to trade. Always look for additional confirmation!