Overbought

Overbought describes a market state that momentum indicators flag when buying has pushed an asset's price up sharply relative to its recent trading range, suggesting the move has outpaced the underlying demand behind it. It is a reading, not a fact about value: the same coin can stay overbought while its price keeps climbing, or it can reverse within hours of the signal appearing.

The concept comes from momentum oscillators that score price action from 0 to 100 and flag overbought once the reading crosses 70. Traditional markets treat 70 as a firm ceiling, but crypto's volatility means many traders widen the band to 80 or higher to avoid exiting too early during a strong trend. Bitcoin, for example, has held an overbought reading for weeks at a stretch during past bull runs without any major correction following.

Because a single overbought reading can be misleading, traders usually look for confirmation before acting on it:

• Bearish divergence, where price sets a higher high but the indicator fails to, often a stronger warning than the 70 line alone
• Falling volume alongside a rising price, hinting that fewer participants are driving the move
• Price relative to a longer-term moving average, since a pullback within an established uptrend behaves differently from a reversal below it

Overbought conditions are common during hype-driven rallies and news-triggered spikes, and they pair with oversold readings as the two poles traders watch for potential turning points. Neither should be treated as a standalone buy or sell trigger; both work best alongside price action, volume, and broader trend context.