Overbought (forex overbought).

The price level on any exchange is regulated by the presence of supply and demand for a certain group of goods, and the over-the-counter forex market is no exception. Sometimes by analyzing its condition you can understand where the price will move next and open a trade in the right direction. One such condition is overbought.

Overbought (forex overbought) is a market condition in which the demand for a certain asset (in our case, currency) has reached its maximum level. That is, buyers who were satisfied with this price had already concluded transactions to purchase currency at the existing rate.

It is understood that if the Forex market has entered an overbought state, then it is likely that prices will decline in the near future.

Since the current price no longer suits potential buyers. If we consider this indicator using a practical example, we can see the following situation:

After the announcement of an improvement in the economic situation in Europe, the EURUSD currency pair began to grow; at a price of 1.2500, transactions worth $10 billion were made, after which the rate rose to 1. 2570, and more deals totaling $5 billion were concluded. Which led to an increase in the price of the currency pair to 1.2590 dollars per euro. At the same time, the number of people willing to buy currency at this rate sharply decreased, and the euro entered the overbought zone on Forex.

Forex overbought is usually considered within certain limits up to the maximum level, at which a trend reversal will occur and the price of the asset will begin to fall in a lower direction.

Typically these are 80 or 90 percent of the existing price level. After overbought (forex overbought) reaches 100%, a trend reversal usually occurs, so this indicator has become the basis of many strategies in both the foreign exchange and stock markets.

To control this indicator, the stochastic indicator , which you will find in the standard set of the trader's terminal .