Glossary · Indicators

Overbought and oversold

Indicator readings suggesting price has risen (overbought) or fallen (oversold) unusually far and fast relative to its recent history.

By Sky Trade editorial teamUpdated November 5, 2026

Overbought and oversold describe extremes on oscillators. Typical thresholds: RSI above 70 or below 30, Stochastic above 80 or below 20, Williams %R above −20 or below −80, CCI beyond ±100.

The words sound like instructions — overbought, so sell — and that is the trap. They describe a fact about the past: price has moved strongly in one direction. In a range, extremes do often come before reversals. In a trend, the oscillator can stay overbought for dozens of candles while price keeps rising, and every “sell the overbought” trade loses.

Ways traders make the reading more careful:

wait for the oscillator to leave the zone (cross back below 70) rather than acting at the first touch;
take extremes only in the direction of the higher-timeframe trend, for instance buying oversold dips in an uptrend;
look for confirmation from price, such as a rejection candle at a level.

None of this turns the reading into a forecast. On Sky Trade's OTC instruments, extremes are simply part of a random path with no tendency to revert. More in RSI explained and the Stochastic guide.

Example

USD/JPY rallies 60 pips and RSI(14) hits 78. A Lower trade at that moment loses as price climbs another 25 pips; RSI drops back below 70 only two candles after the eventual top.

Learn more in the academy

Related terms

Practise first, then decide

Every Sky Trade account comes with a $10,000 demo balance on the same prices and payouts as the real account. Create an account or read how the demo works.

Create an account About the demo account