An indicator is a calculation drawn on a chart from price (and sometimes volume). It summarizes what already happened. It does not see the future.
Simple moving average (SMA)
The average closing price over a set number of periods. A 50-day SMA adds up the last 50 closes and divides by 50. As each new day arrives, the oldest drops out, so the line moves with the price.
Exponential moving average (EMA)
Like an SMA but it weights recent prices more, so it reacts faster. A 20-day EMA turns sooner than a 20-day SMA.
How people read moving averages
- Price above a rising average is usually read as an uptrend. Below a falling average, a downtrend.
- Averages can act as support or resistance where price tends to pause.
- A 50-day crossing above the 200-day is often called a golden cross. Crossing below is a death cross. These lag the move and are not reliable on their own.
Relative strength index (RSI)
RSI is a momentum gauge that moves between 0 and 100. It is usually calculated over 14 periods. By convention, above 70 is called overbought and below 30 is called oversold.
- Overbought does not mean the price must fall. Strong trends can stay above 70 for a long time.
- Oversold does not mean the price must rise.
Keep it simple
Using several indicators that all come from the same price data does not add much confirmation. Learn one or two well.
Education only, not investment advice. Trading involves real risk of loss, including loss of everything you put in. See the full disclaimer.