What is Overbought?
Overbought is a core concept in currency trading.
A market condition where price has risen rapidly and momentum indicators (e.g., RSI > 70) suggest the move may be overextended and vulnerable to a pullback.
Understanding Overbought helps you manage your risk and spot high-probability trade setups.
Why It Matters for Forex Traders
In forex trading, Overbought helps you protect your capital. It gives you a clear rule to follow instead of guessing.
How to Identify and Apply Overbought
- 1Spot and mark Overbought on your chart during active trading hours.
- 2Check that the overall market trend agrees with your trade idea.
- 3Always place a protective stop loss before entering any position.
Practical Forex Example
For example, on a EUR/USD trade, applying Overbought allows you to set clear entry and exit points before risking real money.
PRO TRADER TIP
Always test strategies involving Overbought on a free demo account first before trading with real capital.