Use these popular technical indicators to gauge momentum and identify overbought or oversold conditions.
The Moving Average Convergence/Divergence (MACD) indicator is based on the difference between two exponential moving averages (EMAs). A fast EMA (e.g., 12 days) minus a slow EMA (e.g., 26 days) yields the MACD line. A secondary EMA (e.g., 9 days) of the MACD line acts as the signal line【147862141794353†L161-L172】. When the MACD crosses above the signal line it suggests bullish momentum; crossing below signals potential weakness【147862141794353†L152-L163】.
The Relative Strength Index (RSI) compares average gains and losses over a specified period—often 14 periods—to produce a value between 0 and 100. Values below 30 indicate an oversold condition, suggesting the asset may rebound; values above 70 indicate an overbought condition, suggesting a possible pullback【744554127330339†L645-L669】【744554127330339†L692-L697】. RSI tends to work best in oscillating markets and can remain at extreme levels during strong trends【744554127330339†L676-L679】.
Combining these indicators can enhance your analysis. For example, if the MACD crosses above its signal line while the RSI is between 30 and 70, this could support a buying decision. Conversely, if the MACD crosses below and RSI is above 70, caution may be warranted. Always confirm signals with additional data such as volume and trendlines.