Intermediate 12 min read

Technical Indicators

Tools that turn price data into readable signals

Note: Indicators are calculations applied to price or volume data. They don't predict the future — they help you read the current state of the market and spot higher-probability setups. Use them as supporting evidence, not oracles.

RSI — Relative Strength Index

The Relative Strength Index (RSI) measures the speed and size of recent price changes to gauge whether an asset is overbought or oversold. It moves between 0 and 100 and is usually calculated over 14 periods.

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Below 30OversoldAsset may be undervalued. Possible buy signal — price could bounce.

30 – 70NeutralNormal range. No extreme conditions. Trend and price structure matter more here.

Above 70OverboughtAsset may be overvalued. Possible sell signal — price could pull back.

RSI divergence is a powerful signal. If price makes a new high but RSI makes a lower high, that's called bearish divergence — momentum is weakening even as price rises. The opposite — bullish divergence — happens when price makes a new low but RSI makes a higher low, suggesting selling pressure is running out.

Don't use RSI alone. In a strong uptrend, RSI can stay above 70 for a long stretch. In a strong downtrend, it can stay below 30. Always combine RSI signals with trend direction and price structure.

Tip: RSI works best on the 1h and 4h timeframes. On 1-minute charts it throws too many false signals to be reliable.

MACD — Moving Average Convergence Divergence

MACD is a trend-following momentum indicator built from two moving averages. It has three parts:

MACD line

EMA(12) - EMA(26)

The gap between the 12-period and 26-period EMAs. Positive means the shorter EMA is above the longer — bullish momentum. Negative means the opposite.

Signal line

EMA(9) of MACD

A 9-period EMA of the MACD line. When MACD crosses above it, that's a bullish crossover. Crossing below is bearish.

Histogram

MACD - Signal

Bars above/below zero showing the gap between MACD and Signal. Growing bars mean strengthening momentum; shrinking bars mean it's fading.

The most common MACD signal is the bullish crossover: when the MACD line crosses above the Signal line, especially while both are below zero. That suggests momentum is shifting from bearish to bullish. The bearish crossover (MACD below Signal, especially above zero) signals fading bullish momentum.

Heads up: MACD is a lagging indicator — it uses historical data. By the time a crossover appears, the move may already be underway. Use it to confirm trends, not to predict reversals.

Moving Averages — EMA 9, 21, 200

A moving average smooths price data by averaging it over a set number of periods, filtering out short-term noise. The Exponential Moving Average (EMA) weights recent prices more heavily, making it more responsive than a simple average.

EMA 9Short-term trend

Very sensitive to price. Used by day traders to read immediate momentum. Crosses above/below EMA 21 give quick signals.

EMA 21Medium-term trend

The primary swing-trading EMA. Price holding above it is bullish; below is bearish. Good for timing pullback entries in trending markets.

EMA 200Long-term trend

The most-watched line by larger players. Price above EMA 200 usually means a bull market; below usually means a bear market.

A useful entry technique is trading pullbacks to a moving average. In an uptrend, when price pulls back to touch EMA 21 and then bounces, that's a higher-quality entry — you're buying at a known area of historical support with the trend on your side.

Tip: Stack multiple EMAs (9, 21, 200) on the same chart. When they line up in order — 9 above 21 above 200 — and price is above all three, conditions are strongly bullish. The reverse signals a strong downtrend.

Bollinger Bands — Volatility and Squeeze

Bollinger Bands are a middle moving average (usually 20-period) with two outer bands set at 2 standard deviations above and below it. The bands widen when volatility is high and narrow when it's low, making them a good tool for reading volatility and timing breakouts.

Key Bollinger Band signals:

Band squeezeWhen bands narrow dramatically, volatility is compressing — this typically comes before a large directional move. The squeeze doesn't tell you which way; wait for the breakout candle.

Price at upper bandTouching the upper band means price is trading at the top of its statistical range. Not an automatic sell signal — in strong uptrends price can ride the upper band — but it does mean the asset is extended.

Price at lower bandTouching the lower band in a range-bound market can signal an oversold bounce. In a downtrend, though, breaking below it confirms strong selling pressure.

Band walkIn a strong trend, price can hug and "walk" along one of the outer bands for a while. A sign of extreme momentum, not a reversal signal.

The Bollinger Band squeeze is the most actionable signal. After a long stretch of low volatility (tight bands), the market tends to make a sharp move. Combine the squeeze with volume and MACD direction to guess which way the breakout will go.

Note: Bollinger Bands are most useful in ranging (sideways) markets. In trending markets, lean on moving averages instead — price will consistently trade outside one band in a strong trend, giving false signals.

Key takeawayNo indicator predicts the future by itself. Use RSI and MACD to gauge momentum, EMAs to read the trend, and Bollinger Bands to read volatility — then combine at least two before acting.

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