#TradingTools101 ๐ Popular Trading Indicators Explained: RSI, MACD & Moving Averages
๐น 1. RSI (Relative Strength Index)
Purpose: Measures momentum โ tells you if an asset is overbought or oversold.
Scale: 0 to 100
Above 70 = Overbought (price may fall soon)
Below 30 = Oversold (price may rise soon)
Use Case:
๐ RSI helps identify entry or exit points during trend reversals.
Example:
If Bitcoin RSI is 80 โ traders may prepare to sell.
If it's 20 โ it may be a buying opportunity.
โ Best for: Quick analysis of trend exhaustion.
๐น 2. MACD (Moving Average Convergence Divergence)
Purpose: Shows trend direction, momentum, and potential reversals.
How it works:
It uses two moving averages (fast & slow) to form a MACD line and a Signal line.
Also includes a histogram that shows momentum strength.
Key signals:
When MACD line crosses above the Signal line โ Buy signal
When MACD line crosses below the Signal line โ Sell signal
Use Case:
Detect trend changes early and confirm strength of a move.
โ Best for: Medium-term traders & swing traders.
๐น 3. Moving Averages (SMA & EMA)
Purpose: Smooth out price data to spot overall trend direction.
Types:
SMA (Simple Moving Average): Average of prices over a period
EMA (Exponential MA): Gives more weight to recent prices (faster signals)
Popular MA levels: 20, 50, 100, 200
Price above MA = uptrend
Price below MA = downtrend
Use Case:
Use crossovers (e.g., 50 EMA crossing 200 EMA) to confirm bullish or bearish momentum.
โ Best for: Identifying long-term trend and support/resistance zones.