Trading with Moving Averages & RSI

Technical indicators are mathematical calculations based on historical price and volume. They serve to filter noise, determine trend directions, and spot exhausted markets.

1. Moving Averages (MAs) Moving Averages smooth out price fluctuations to show the underlying trend. * **Simple Moving Average (SMA)**: Calculates the average price over a set period (e.g., 50 days). Equal weight is given to all bars. * **Exponential Moving Average (EMA)**: Places higher weight on recent price data. It reacts faster to recent volatility.

Common MA Systems: * **Trend Filter**: If price is above the 200 EMA, look only for long entries. If price is below, look only for shorts. * **MA Cross**: When a short-term MA (e.g., 50 EMA) crosses above a long-term MA (e.g., 200 EMA), it signals a bullish trend shift (the **Golden Cross**). The reverse is a bearish **Death Cross**.

2. Relative Strength Index (RSI) The RSI is a momentum oscillator that measures the speed and change of price movements on a scale from 0 to 100. * **Overbought (>= 70)**: Suggests that price has risen too quickly and may be primed for a temporary corrective pullback or reversal. * **Oversold (<= 30)**: Suggests that price has fallen too quickly and may bounce.

RSI Divergence (Advanced) A powerful reversal signal occurs when price makes a new high/low, but the RSI fails to confirm it: * **Bullish Divergence**: Price makes a *lower low*, but RSI makes a *higher low*. Suggests selling momentum is dying. * **Bearish Divergence**: Price makes a *higher high*, but RSI makes a *lower high*. Suggests buying momentum is dying.