In a nutshell, overbought means the stock prices increase, oversold means the stock prices decrease. A reverse is possible when prices reach these extreme levels. You can use the RSI = Relative Strength Index to confirm a reversal.
OVERBOUGHT
Overbought describes where a stock’s price increases, as there is a limited amount of stock available and there are more buyers than sellers.
OVERSOLD
Oversold describes a period of time where there has been a consistent downward movement in the price of stock over a period of time where you have more sellers than buyers and the price of the stock decreases.
There is also the important implication of both conditions. When a stock is overbought, the implication is that buying has pushed the price too far up and a reaction, called a price pullback, is expected. When a stock is oversold, the implication is that selling has pushed the price too far down and a reaction, called a price bounce, is expected.