What are technical indicators?
Technical indicators are mathematical tools that help traders analyze price behavior and confirm trends, momentum, or volatility.
Professionals use them to support, not replace, price action.
They fall into three main types:
- Trend indicators (e.g., moving averages, MACD)
- Momentum indicators (e.g., RSI, Stochastic)
- Volatility indicators (e.g., Bollinger Bands, ATR)
Exponential Moving Average (EMA)
The EMA gives more weight to recent prices, offering a smoother view of market direction.
- EMA 50: short/medium-term trend.
- EMA 200: long-term trend reference.
If price stays above EMA 50, bias is bullish; below, bearish.
The Golden Cross (EMA 50 crossing above EMA 200) may signal a bullish shift, while the Death Cross indicates the opposite.
RSI and MACD
RSI (Relative Strength Index)
Measures momentum and identifies overbought (>70) and oversold (<30) zones.
Divergences between price and RSI often warn of trend exhaustion.
MACD (Moving Average Convergence Divergence)
Tracks the relationship between two moving averages.
- A bullish cross of MACD over Signal line = potential upward momentum.
- Histogram growth = acceleration of trend.
- Contraction toward zero = weakening momentum.
Bollinger Bands and volatility
Composed of a 20-period SMA and two standard deviation envelopes, Bollinger Bands measure volatility.
- Widening bands: high volatility.
- Narrowing bands (squeeze): low volatility, often before a breakout.
Traders use them for reversal plays (price touches outer band) or breakout setups (price breaks after a squeeze).
