Learn Technical Indicators (MACD, RSI, Bollinger Bands)

Learn how MACD, RSI, Bollinger Bands, and moving averages (SMA/EMA) work with an interactive sample chart, including common buy/sell signal patterns.

How to read moving averages (SMA / EMA)

A Simple Moving Average (SMA) is the plain average of the closing price over the last N periods, while an Exponential Moving Average (EMA) weights recent prices more heavily. Both smooth out the noise in a price chart, making the overall trend direction easier to see.

When price crosses below its moving average, that is often read as a shift toward a downtrend; crossing above suggests a shift toward an uptrend (the basic idea behind "golden cross" and "death cross" signals). Because EMA reacts faster to recent price changes than SMA, short-term traders tend to prefer it.

How to read MACD

MACD is a trend-following indicator made of two lines: the MACD line (short-term EMA minus long-term EMA) and a smoothed signal line derived from it. The difference between the two is plotted as a histogram.

When the MACD line crosses above the signal line (a "golden cross"), it is generally read as a bullish signal; crossing below (a "death cross") is read as bearish. The histogram crossing above or below zero carries the same meaning and is often easier to spot visually.

How to read RSI (Relative Strength Index)

RSI is a 0-100 oscillator calculated from the ratio of average gains to average losses over a lookback period, and it measures how "overbought" or "oversold" a price is. Conventionally, a reading above 70 suggests overbought, and below 30 suggests oversold.

RSI tends to work best in a ranging (sideways) market. During a strong sustained trend, it can stay pinned above 70 or below 30 for long stretches, so it is usually combined with other indicators rather than used on its own.

How to read Bollinger Bands

Bollinger Bands plot an upper and lower band a fixed multiple of the standard deviation away from a moving average (the middle line). Statistically, price is expected to stay within the middle line ± 2 standard deviations most of the time.

When price oscillates tightly within a narrowing band, this is called a "squeeze"; when it hugs the upper or lower band while the bands widen, it is called a "band walk". A squeeze followed by a sudden widening is often watched as an early sign of a large price move.

Tips

  • Switch between indicators using the selector to compare how each one reacts to the same sample price series.
  • MACD and RSI are usually more reliable when read together with the overall price trend and moving averages, rather than in isolation.
  • All charts on this page use sample data generated for learning purposes only; they are not real stock or currency prices, so please do not use them to make trading decisions.
  • The RSI thresholds of 70/30 and the Bollinger Band width of ±2 standard deviations are common rules of thumb, not fixed rules — the best settings vary by asset and timeframe.

FAQ

They serve different purposes. MACD is better suited to spotting trend direction and reversals, while RSI is better suited to measuring overbought/oversold conditions. Many traders use both together: MACD to confirm the trend direction, and RSI to avoid entering when conditions look overextended.

A "golden cross" is when a shorter-term line (a moving average, or the MACD line) crosses above a longer-term line (a longer moving average, or the signal line) — generally read as a bullish signal. A "death cross" is the opposite crossover, generally read as bearish.

It comes from J. Welles Wilder, who recommended a 14-day lookback in his original book, and it became the industry default from there. A shorter period reacts faster but produces more noise, while a longer period smooths out noise at the cost of slower signals.

Technical indicators are lagging measures calculated from historical price data — they do not guarantee future price movement. Most traders combine them with fundamental analysis (earnings, economic data) and risk management practices such as stop-loss rules.
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Side Note — The People Behind Technical Indicators

Analyzing price trends with moving averages is often traced back to Charles Dow, who established Dow Theory in the late 19th century, though moving average analysis in its modern form did not become widespread until the mid-20th century. RSI was introduced by J. Welles Wilder in his 1978 book "New Concepts in Technical Trading Systems", the same period in which he also devised other well-known indicators such as the Average True Range (ATR) and the Parabolic SAR.

MACD was developed by Gerald Appel in the 1970s. It combines the trend-following nature of EMAs with an oscillator-like reading of momentum, a simple but effective design that is often cited as a reason it remains widely used by traders around the world today.

Bollinger Bands were devised by John Bollinger in the 1980s. Fixed-width trading bands already existed before then, but the innovation was letting the band width expand and contract automatically based on price volatility (standard deviation) — turning rising or falling volatility itself into something you can see at a glance, which is why the indicator caught on so widely.

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