Trading
The three indicators worth learning first are moving averages, which smooth price to show trend, RSI, which measures momentum on a 0 to 100 scale, and volume, which shows real participation. Every indicator is derived from price and volume, so none of them contains information the chart does not already have.
The thing to understand first
Every indicator is a mathematical transformation of price and volume. None of them adds new information. What they do is make certain aspects easier to see, which is genuinely useful and is not the same as predictive.
Moving averages
A moving average plots the average closing price over the last N periods. It smooths noise and makes the trend direction visible.
| Type | How it works | Best for |
|---|---|---|
| Simple (SMA) | Every period weighted equally | Long term trend. The 200 day SMA is the most watched line in markets |
| Exponential (EMA) | Recent periods weighted more heavily | Shorter term, reacts faster and gives more false signals |
- Price above a rising moving average is the simplest possible definition of an uptrend.
- Crossovers, such as the 50 crossing the 200, get a lot of attention. They are lagging by construction and they mark trend changes after they have happened.
- Moving averages as levels. Price frequently reacts at the 50 and 200, partly because so many people are watching them.
RSI
The Relative Strength Index measures the speed and size of recent price changes on a scale of 0 to 100. Above 70 is conventionally called overbought and below 30 oversold.
The more useful application is divergence: price makes a higher high while RSI makes a lower high, suggesting momentum is fading even though price is not. It is a warning, not a signal, and it can persist far longer than seems reasonable.
Volume
The only indicator that is not derived from price. Volume shows how much actually traded, which is the closest thing to independent confirmation a chart offers.
- Breakouts on expanding volume hold more often than breakouts on thin volume.
- Rising price on declining volume suggests the move is running out of participants.
- A huge volume spike after a sustained decline often marks capitulation and a local low.
- Volume can be inflated by wash trading, particularly on smaller venues.
A sensible starting setup
Add a 50 and a 200 period moving average
Two lines. Above both and rising is an uptrend. Below both and falling is a downtrend. That is most of what you need.
Turn volume on
Usually on by default. Look at it every time you look at a breakout.
Add RSI if you want momentum
One oscillator is enough. Use it for divergence rather than for the 70 and 30 lines.
Stop there
Seriously. Adding more indicators produces more conflicting signals from the same underlying data, and the conflict feels like analysis while being noise.
Common questions
Which indicator is the most accurate?
None of them are accurate in a predictive sense. Volume is the most informative because it is the only one not derived from price. Moving averages are the most useful for defining trend simply.
What is a golden cross?
The 50 day moving average crossing above the 200 day. It gets a lot of coverage and it is lagging by construction, so it confirms a trend change rather than anticipating one.
Should I use RSI to time entries?
Not on its own. RSI can stay overbought throughout an entire trend. Divergence at a meaningful level is more useful than the 70 and 30 thresholds.
Where to go next
Set up a clean chart together
Two moving averages, volume and RSI, configured properly, with an explanation of what each one is actually measuring. Fifteen minutes and you will stop adding indicators.