Overbought is a term used to describe when the price of a security is believed to be trading at an above its fair or intrinsic value. This belief usually comes from technical analysis of the security’s past price history, but it can also come from fundamental analysis as well. When a stock becomes overbought, there may be an expectation that the market will correct itself in near future and bring down its price.Investors often look for stocks that are overbought because they may provide good short-term returns if they are sold before prices decline too much due to market corrections. However, investors should do their own research on any potential investments and make sure they understand why it has become overvalued before investing in them so as not to get caught off guard by any sudden changes in prices or unexpected events such as earnings reports or news releases which could affect their investment decisions significantly.Overall, understanding what makes certain securities become “overbought” can help investors identify potential opportunities for making profits off of short-term trades while avoiding losses due to sudden drops in prices caused by corrective movements within markets . It is important for all traders and investors alike remember that no matter how attractive something appears at first glance ,investing without doing proper research into fundamentals could lead one astray quickly resulting significant financial losses.
