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Lesson 5 of 8
Technical Indicators
What Are Technical Indicators?
Technical indicators are mathematical calculations based on price, volume, or both. They help identify trends, momentum, and potential reversals.
⚠️ Indicator Warning
Indicators are tools, not crystal balls. They lag price action and can give false signals. Use them for confirmation, not as primary decision makers.
Moving Averages
Smooth out price data to show trend direction.
- SMA (Simple): Equal weight to all periods
- EMA (Exponential): More weight to recent prices, faster response
- Common Periods: 20, 50, 200 days
- Golden Cross: 50 MA crosses above 200 MA (bullish)
- Death Cross: 50 MA crosses below 200 MA (bearish)
RSI (Relative Strength Index)
Measures momentum on a 0-100 scale.
- Above 70: Potentially overbought
- Below 30: Potentially oversold
- Divergence: Price and RSI moving opposite directions = potential reversal
MACD
Shows relationship between two moving averages.
- MACD Line: 12 EMA minus 26 EMA
- Signal Line: 9 EMA of MACD
- Bullish: MACD crosses above signal
- Bearish: MACD crosses below signal
Volume
Confirms price movements. Rising price with rising volume = strong move. Rising price with falling volume = weak move, potential reversal.
📋 Key Takeaways
- Review this lesson's material before moving on
- Practice the concepts on a demo account
- Take notes on what you've learned