What does Overbought mean?
Let's find out Overbought meaning, definition in crypto, what does Overbought mean, and all other detailed facts.
Overbought describes a process when the price of a cryptocurrency continually increases over time thanks to investments without a clearly defined investment rationale. A cryptocurrency asset is considered to be overbought when it trades above its fair value.
Overbought conditions may vary in duration. If the market condition changes, the price of the asset may rapidly sink down. Technical analysis tools are used to observe the asset prices and determine whether it is overbought, as well as when and how likely the price is to make a U-turn.
Economists use fundamental analysis to evaluate all public information regarding the market and macroeconomic factors. Such analysis can also help discover the grounds for the overbought condition. Furthermore, fundamental analysis may be used to predict when a cryptocurrency will leave the overbought condition and the estimated price decrease.
Investors can use technical tools such as traded volume and momentum, as well as the recent price, to determine the overbought levels. Some of the factors taken into account to indicate an overbought condition are the relative strength index (RSI), stochastic, and Williams %R.
The relative strength index is used to determine the trading speed and price fluctuations. All values are recorded on a scale from 0 to 100. If a cryptocurrency is overbought, its RSI level is marked above 70. In February 2020, Bitcoin (BTC) reached overbought levels according to RSI data when it reached the $10,000 mark.
Stochastic is used to compare the current price of the asset with its highest and lowest price points within a certain period of time using a scale of 0 to 100. If an asset is rated above 80, it is considered overbought.
Williams %R compares the current price with the lookback – the highest price over a certain period of time. An asset is considered overbought if it falls within the 20-0 range.