Overbought (forex overbought).

Price levels on any exchange are regulated by supply and demand for a given group of commodities, and the over-the-counter forex market is no exception. Sometimes, by analyzing its state, one 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 demand for a particular asset (in this case, currency) has reached its maximum level. This means that buyers who were satisfied with the current price have already entered into transactions to purchase the currency at the current rate.

This means that if the forex market has entered an overbought state, a price decline is highly likely to be expected in the near future, as the current price no longer satisfies potential buyers.

If we examine this indicator using a practical example, we see the following situation:

After the announcement of an improving economic situation in Europe, the EURUSD currency pair began to rise, with $10 billion worth of transactions executed at a price of 1.2500. The rate then rose to 1.2570, with further transactions totaling $5 billion. This led to the currency pair rising to $1.2590 per euro. At the same time, the number of people willing to buy the currency at this rate sharply declined, and the euro entered the overbought zone on the forex market.

Forex overbought is usually considered within certain limits, reaching a maximum level at which a trend reversal occurs and the asset price begins to decline. These levels typically fall between 80 and 90 percent of the current price level.

Once overbought reaches 100%, a trend reversal typically occurs, which is why this indicator has become the basis for many strategies in both the forex and stock markets.

To monitor this indicator, use the stochastic indicator , which you'll find in the standard trader terminal .