RSI & MACD Indicators
The two most powerful momentum indicators — how to read them and avoid the common traps.
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RSI and MACD measure momentum — the speed and strength of price moves. Used with price action, they dramatically improve entry and exit timing.
RSI: Relative Strength Index
RSI measures speed and magnitude of price changes on a 0–100 scale. Above 70 = traditionally overbought. Below 30 = traditionally oversold.
Important
Common trap: Trading RSI overbought/oversold alone fails. In strong trends, RSI stays overbought or oversold for weeks. Always combine with price action and structure.
- Bearish divergence: Price makes new high, RSI makes lower high — momentum weakening
- Bullish divergence: Price makes new low, RSI makes higher low — selling weakening
- RSI above 50: Bullish momentum bias
- RSI below 50: Bearish momentum bias
MACD: Moving Average Convergence Divergence
MACD shows the relationship between the 12 and 26 EMA, with a 9-period signal line.
- MACD crosses above signal line: Bullish momentum building
- MACD crosses below signal line: Bearish momentum building
- Histogram growing: Momentum increasing
- Histogram shrinking: Momentum slowing
- MACD above zero: Bullish bias; below zero: bearish bias
Combining RSI + MACD
The most powerful entries combine both. A long signal is strongest when RSI turns up from 40 AND MACD crosses bullish simultaneously. Both confirming = much higher probability trade.
Discussion3 comments
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