Over-bought

The reverse of over-bought. A single security or a market which, it is believed, has declined to an unreasonable level.

In addition, extreme periods are often followed by a reversal of price trend and so are called "over-bought" and "over-sold" area's.

Upon seeing a doji in an over-bought or oversold conditions, (over-bought or oversold conditions can be defined using other indicators such as stochastics), becomes an extremely high probability reversal situation.

26 As explained earlier, the Stochastics calculates an indicator that reveals over-bought and undersold situations. The Stochastics formula does not allow derivation of a point forecast. Prof. Ronald MacDonald, Prof. Norbert Fiess Next: Profitability ...

0 percent would offer a similar over-bought signal to a dividend yield of less than 3.5 percent (0.035/0.7=0.05). This translates to a price-earnings (PE) ratio above 20. I use a PE ratio above 20 to signal that a bull market is entering stage 3.

The moving average creates an excellent short-term overbought/oversold indicator. Both the Over-bought/-Oversold indicator and the McClellan Oscillator are created using moving averages of advancing minus declining issues.

Our hypothesis had been that Bonds would turn down to violate their June 2007 lows which would cause the stock market to finally capitulate. Alas, that still has not happened and whilst bonds are over-bought they remain well bid in this nervous ...

But as with most indicators, it is best to have a confirmation by another pattern or signal. A good signal to use in conjunction with the Doji could be the Relative Strength Index (RSI) which would confirm an over-bought or over-sold situation.

See also: Trade, Trading, Indicators, Analysis, Trend