Overbought
When a cryptocurrency increases in price without solid fundamentals, it is known as an overbought cryptocurrency, which typically indicates trading above its true value.
Commonly, an overbought cryptocurrency will experience a price correction where it eventually retraces and declines. The market adage ‘What goes up, must come down’ reflects the uncertainty about the timing of this correction.
While traders use analysis tools to better their judgement and decision-making, they may not work with 100% accuracy. Technical indicators like Bollinger Bands, the Relative Strength Index (RSI), and stochastic are used to better understand whether a digital asset is overbought and potentially verging on a price reversal.
Key Takeaway
Overbought is a term to describe a cryptocurrency that has had its price increase more than its fundamentals would allow, either briefly or for an extended period of time.