Technical indicators are mathematical formulas derived from price data. They help confirm trends, identify overbought/oversold signals, and find entry points. Three indicators dominate practice.

1. RSI — Relative Strength Index

The RSI measures the strength of recent price movements on a scale from 0 to 100. Developed by J. Welles Wilder, it is the most widely used oscillator worldwide.

Interpretation

RSI above 70: Overbought — price may have risen too fast too far. Caution with new long positions.
RSI below 30: Oversold — price may have fallen excessively. Potential buying opportunity.
RSI Divergence: When price makes new highs but RSI does not follow, it indicates an impending trend reversal. One of the strongest signals in technical analysis.

Nuances

In strong trends, RSI can remain in overbought territory for extended periods without a correction. Do not use RSI in isolation as a buy/sell signal, but as a filter in combination with other indicators.

2. MACD — Moving Average Convergence Divergence

MACD measures the relationship between two moving averages. It consists of three components:

MACD line: Difference between EMA 12 and EMA 26
Signal line: EMA 9 of the MACD line
Histogram: Difference between MACD line and signal line

Trading Signals

Bullish signal: MACD line crosses signal line from below
Bearish signal: MACD line crosses signal line from above
Zero line: MACD above zero = uptrend, below zero = downtrend
MACD Divergence: Like RSI — when price and MACD diverge, a trend reversal looms

3. Bollinger Bands

Developed by John Bollinger, they consist of three lines:

Middle band: SMA 20 (20-day average)
Upper band: SMA 20 + (2 x standard deviation)
Lower band: SMA 20 - (2 x standard deviation)

Interpretation

Squeeze: Bands narrow → low volatility → impending strong breakout. Direction is unclear but intensity will be high.
Price touches upper band: Not automatically overbought — in trends, price can ride the upper band for extended periods.
Price touches lower band: Potential support but not an automatic buy signal.
Walk the band: In strong trends, price walks along the upper (uptrend) or lower band (downtrend).

The Combination: RSI + MACD + Bollinger

The strongest signals arise when all three indicators agree:

Buy signal example:

RSI below 30 (oversold) check
MACD bullish crossover check
Price touching lower Bollinger Band check
→ Strong buy signal with high reliability

Our AI calculates these convergences automatically and outputs them as a multi-indicator confidence score. The more indicators that agree, the higher the score.

Bottom Line: No single indicator is perfect. But RSI, MACD, and Bollinger Bands together form a robust analysis framework covering 90% of technical analysis needs.