Technical Indicators

A moving average (MA) smooths price data by calculating the average price over a defined period. The Simple Moving Average (SMA) gives equal weight to all periods. The Exponential Moving Average (EMA) gives more weight to recent prices.

Common periods: 20 EMA (short-term trend), 50 EMA (medium-term), 200 EMA (long-term). When price is above the 200 EMA, the asset is generally in a long-term uptrend.

Moving average crossovers — when a faster MA crosses above a slower MA — are used as trend signals. The "golden cross" (50 MA crossing above 200 MA) and "death cross" (50 MA crossing below 200 MA) are widely watched.

RSI measures the speed and magnitude of recent price changes on a scale of 0–100. Readings above 70 are traditionally considered "overbought" and below 30 "oversold."

However, in strong trends, RSI can remain overbought or oversold for extended periods. Using RSI alone to call reversals is a common beginner mistake.

RSI divergence is more powerful: when price makes a new high but RSI makes a lower high (bearish divergence), it signals weakening momentum. When price makes a new low but RSI makes a higher low (bullish divergence), it signals potential reversal.

MACD (Moving Average Convergence Divergence) consists of two lines: the MACD line (difference between 12 and 26 EMA) and the Signal line (9 EMA of the MACD line). A histogram shows the difference between them.

A bullish signal occurs when the MACD line crosses above the Signal line. A bearish signal occurs when it crosses below. Histogram bars growing larger indicate strengthening momentum.

Like RSI, MACD divergence is often more useful than crossovers alone. MACD works best on higher timeframes (4h, Daily) where noise is reduced.

Bollinger Bands consist of a middle band (20 SMA) and two outer bands set 2 standard deviations above and below. They expand during high volatility and contract during low volatility.

Price touching the upper band does not automatically mean "sell" — in strong uptrends, price can "walk the band" for extended periods. Context matters.

The "Bollinger Band squeeze" — when the bands contract to their narrowest point — often precedes a significant price move. The direction of the breakout determines whether to look long or short.

Using multiple indicators that measure the same thing (e.g., RSI + Stochastic + CCI) does not add information — it just creates noise. This is called "indicator redundancy."

A better approach: combine indicators from different categories — trend (MA), momentum (RSI), and volatility (Bollinger Bands). Each adds a different dimension of information.

The most important rule: indicators are tools to confirm what you already see in price action, not replacements for understanding price structure. Always start with the chart, then use indicators to validate.

Every indicator generates false signals. The question is not "which indicator never gives false signals" — none do — but "how do I filter out false signals?"

Filters include: requiring confluence (multiple indicators agreeing), only taking signals in the direction of the higher timeframe trend, and waiting for candle closes rather than acting on intra-candle moves.

Backtesting your indicator settings on historical data is the only way to know whether a combination has a genuine edge. Optimising settings on the same data you test on (curve-fitting) produces misleading results.

On-Balance Volume (OBV) accumulates volume on up days and subtracts it on down days. Rising OBV with rising price confirms the trend. Divergence between OBV and price is a warning signal.

Volume Profile shows the distribution of volume at each price level over a period. High-volume nodes act as support/resistance. Low-volume nodes are areas where price tends to move quickly.

Volume indicators are particularly useful in crypto because on-chain data (exchange inflows/outflows, whale movements) can be correlated with price action to identify institutional activity.