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Overbought means an asset’s price has risen significantly in a short period and may be due for a pullback or reversal. Oversold means the price has fallen significantly and may be due for a bounce. These conditions are typically identified using oscillators like the RSI (above 70 = overbought, below 30 = oversold) or Stochastic. Overbought and oversold readings are signals, not guarantees — a strongly trending market can remain overbought or oversold for extended periods.
Gold (XAUUSD) rallies $120 in three days and the daily RSI hits 82 (overbought). Some traders take profit or look for short entries. However, in a strong bull trend, gold could continue rising for days before the RSI pulls back below 70.
