Overbought/Oversold
Both of these market conditions occur when a market's price has reached an extreme level. An overbought market is one where the price has risen too far and may need to pause at its current price level, or even possibly fall. An oversold market is when a market has fallen in price too far, and will most likely turn upward, at least in the short term. A general rule of thumb for determining overbought and oversold markets is that when a market doubles in price, it is usually overbought, and when a market's price drops in half, the market is oversold.
You are able to more precisely determine whether a market is overbought or oversold using studies. The technical indicators most commonly used to identify overbought or oversold markets are oscillators. Examples of oscillator indicators are Welles Wilder's Relative Strength Index (RSI), which helps to determine market rallies or drops, the McClellan Oscillator, which monitors price differences between advancing and declining markets within a specific exchange (such as