Technical Indicators: A Complete Explained Summary

 

1. What Are Indicators?

Indicators are mathematical calculations derived from price, sometimes also from volume. Traders like indicators because:

1. They give quantitative, number-based signals.
2. They are very easy to plot—charting platforms calculate them automatically.

Indicators help you understand things like:

1. Overbought / Oversold zones
2. Momentum strength
3. Trend direction
4. Distance from average price

There are two kinds of indicators:

A. Overlay Indicators (plotted on price chart)

• Moving Averages
• Bollinger Bands

B. Underlay Indicators (plotted in a separate panel)

• RSI
• MACD
• Stochastics

Underlay indicators are also called oscillators, because they move between fixed values (0–100).

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⭐ 2. Moving Averages (MA)

A Moving Average is just an average of the last X days that keeps updating every day.

Analogy (Cricket Example)

Imagine calculating the last 5-match average of a batsman.
When match 6 happens, match 1 is dropped and match 2–6 are averaged.

This is exactly how a moving average works:

• New price comes in
• Oldest price is removed
• The average moves → Moving Average

Why Traders Use MA

• Gives a clean “baseline” of the price
• Smooths out noise
• Helps identify trend direction
• Works well on higher timeframes (daily, weekly)

Common MAs

• 20-day MA → short-term
• 50-day MA → medium-term
• 100-day MA → long-term
• 200-day MA → very strong long-term trend indicator

Trend Rule

• Price above MA → bullish trend
• Price below MA → bearish trend

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⭐ 3. Exponential Moving Average (EMA)

EMA is an improved form of MA.

Why EMA is better

• EMA gives more weight to recent prices
• So it reacts faster to trend changes

Difference

• SMA: slow & smooth
• EMA: fast & sensitive

Example:
When the price falls suddenly, EMA turns downward faster than SMA.

Traders prefer EMA because it is more responsive.

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⭐ 4. MACD (Moving Average Convergence Divergence)

MACD is a momentum indicator created by Gerald Appel.

How MACD is calculated

1. MACD Line = 12-day EMA − 26-day EMA
2. Signal Line = 9-day EMA of MACD Line
3. Histogram = MACD Line − Signal Line

MACD moves above and below zero:

• Above zero → bullish momentum
• Below zero → bearish momentum

How Traders Use MACD

A. Histogram Zero-Crossing

• Histogram rises above zero → trend turning up
• Histogram falls below zero → trend turning down

B. MACD Line & Signal Line Cross

• MACD crosses above Signal → bullish
• MACD crosses below Signal → bearish

Key Strength

MACD shows both:

• Trend direction
• Momentum strength

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⭐ 5. RSI (Relative Strength Index)

Created by J. Welles Wilder, RSI measures momentum and compares up days vs. down days.

RSI moves between 0 to 100, with key zones:

• Above 70 → Overbought (price may pause or fall)
• Below 30 → Oversold (price may bounce)

Examples

If RSI < 30 → selling pressure is high → short-term bounce likely
If RSI > 70 → buying pressure is high → short-term correction likely

RSI Problem: Stickiness

Sometimes price stays overbought for weeks, especially in strong uptrends.
Example: RSI stays around 75–80 without falling → trend is powerful.

So RSI should not be used alone.

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⭐ 6. Summary of All Indicators

Indicator	Type	Use
SMA	Trend	Simple average of price
EMA	Trend	Faster, reacts quickly
MACD	Momentum + Trend	Zero-line shifts & crossovers
RSI	Momentum	Shows overbought & oversold

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⭐ Final Learning Advice

To build strong technical analysis skills:

• Use higher timeframes (Daily, Weekly)
• Combine indicators (MA + RSI or RSI + MACD)
• Always read price action along with indicators
• Indicators increase probability, not guarantees