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 describes where a stock’s price increases, as there is a limited amount of stock available and there are more buyers than sellers.
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.