What Is RSI (Relative Strength Index)?
RSI oscillates between 0 and 100, developed by J. Welles Wilder in 1978. The 14-period RSI is the most common setting.
RSI > 70: Overbought — price may pull back. RSI < 30: Oversold — bounce may be coming. In strong trends, RSI can remain above 70 or below 30 for extended periods.
RSI divergence: If price makes a new high but RSI makes a lower high, the trend may be weakening — a potential reversal signal.
What Is MACD (Moving Average Convergence Divergence)?
MACD is the difference between the 12-period EMA and the 26-period EMA. A 9-period EMA of MACD serves as the "signal line."
MACD crosses above signal line: bullish momentum — buy signal. MACD crosses below signal line: bearish momentum — sell signal. Zero-line crossovers are also significant.
The MACD histogram visualizes the gap between MACD and its signal line. A growing histogram means momentum is accelerating; a shrinking histogram means it's fading.
Using RSI and MACD Together
When RSI is in oversold territory (< 30) and MACD simultaneously crosses above its signal line, it forms a strong combined buy signal. Agreement between both indicators (confirmation) reduces false signals.
Never use these indicators in isolation. Combining them with support/resistance levels and volume analysis significantly improves reliability.