How to interpret overbought and oversold zones?

Overbought and oversold zones are crucial concepts in technical analysis that help traders assess the likelihood of a price trend reversal. Overbought occurs when an asset has risen too quickly, which may indicate it is overvalued. In such conditions, traders anticipate a correction. Oversold, on the other hand, happens when the price drops too much, indicating a potential recovery. To accurately interpret these zones, traders should use indicators such as RSI or Stochastic Oscillator to identify entry and exit points in the market.