PDSnet Glossary

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Definition

A technical analysis term which indicates the degree to which a share's price has risen above its "real value". The real value of a share is a matter of opinion and there is a wide variation in investors' perceptions of real value. So whether or not a share is overbought is in the end a matter of opinion. Overbought/oversold indicators can show whether the share is well above its average price of a user-defined historical period. This can then provide an indication of the extent to which particular shares become overbought or oversold. Thus, for example, you may want to be alerted whenever ABC Ltd is more than 25% above or below a 200-day moving average of its share price - because at those points it is, in your view, definitely overbought or oversold which may represent an opportunity.

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