Technical Indicators Explained: Moving Averages, RSI and MACD
Indicators are calculations based on price (and sometimes volume). They do not predict the future, but they can summarise trend and momentum in a consistent way. The technical-analysis gauge on each of our market pages combines several of these into a simple buy/neutral/sell reading.
Moving averages
A moving average smooths price over a set number of periods. The simple moving average (SMA) weights each period equally; the exponential moving average (EMA) gives more weight to recent prices. Common settings are the 20, 50 and 200 periods. Price above a rising 200-day average is widely read as a long-term uptrend.
Relative Strength Index (RSI)
RSI measures the speed of recent gains versus losses on a scale of 0 to 100, usually over 14 periods. Readings above 70 are often called overbought and below 30 oversold. In strong trends, RSI can stay at extreme readings for a long time, so treat it as context rather than a signal on its own.
MACD
The Moving Average Convergence Divergence indicator is the difference between a 12-period and a 26-period EMA, plotted with a 9-period signal line. Crossovers of the MACD and signal line, and moves above or below zero, are used to judge momentum shifts.
Divergence
When price makes a new high but an oscillator such as RSI makes a lower high, that is called bearish divergence, a hint that momentum is fading. The reverse at lows is bullish divergence.
Limitations
All indicators lag price because they are built from past data. Using many similar indicators at once adds little new information. Pick a small set, understand what each measures, and always check them against the price chart itself.
Educational content only, not financial advice. See our disclaimer.
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