Overbought

Overbought describes a market that has risen far enough, fast enough that momentum oscillators reach the top of their scales: RSI above 70 or the stochastic oscillator above 80 are the standard definitions. The label means the recent pace of buying is statistically stretched, not that the price is wrong or a decline is due.

This distinction separates profitable use from the classic beginner error. The strongest stocks get overbought and stay overbought; an RSI holding above 70 for weeks is itself evidence of unusual demand, and shorting into it is a losing strategy on average. Overbought readings mean something different in a range, where the top of the range plus a stretched oscillator has an actual edge for mean reversion.

Practical uses: avoid initiating new longs into a stretched reading, tighten stops on existing positions, and wait for the oscillator to reset on a pullback before adding.