Summary

1. A short-term trading setup may adjust the RSI indicator to

consider 20 and 80 as oversold and overbought levels
(instead of 30 and 70), so it is less likely to provide false
signals.
2. Traders also make use of the RSI to try and predict trend
reversals or to spot support and resistance levels. Such an
approach is based on the so-called bullish and bearish
divergences: conditions where the price and the RSI scores
move in opposite directions
i. Bullish divergence: RSI score rises while price falls,
indicating that the buying force is getting stronger
despite the price downtrend.
ii. Bearish divergence: RSI score drops while the asset
price increases.
1. Moving Averages MAs and Exponential
Moving Averages EMAs
i. Because EMAs are more likely to project price reversals
faster than SMAs, they are often especially favored by
traders who are engaged in short-term trading
ii. Short-term traders often favor a smaller data set (eg 10
days instead of 100 days) that allows for more
reactionary trading.
iii. Naturally, a rising MA suggests an upward trend and a
falling MA indicates a downtrend. However, a moving
average alone is not a really reliable and strong
indicator. Therefore, MAs are constantly used in
combination to spot bullish and bearish crossover
signals.
iv. A crossover signal is created when two different MAs
crossover in a chart. A bullish crossover (also known as
a golden cross) happens when the short-term MA
crosses above a long-term one, suggesting the start of
an upward trend. In contrast, a bearish crossover (or
death cross) happens when a short-term MA crosses
below a long-term moving average, which indicates the
beginning of a downtrend. 
 v. One major downside of MAs is their lag time. Since MAs
are lagging indicators that consider previous price action,
the signals are often too late. For instance, a bullish
crossover may suggest a buy, but it may only happen
after a significant rise in price. 
vi. This means that even if the uptrend continues, potential
profit may have been lost in that period between the rise
in price and the crossover signal. Or even worse, a false
golden cross signal may lead a trader to buy the local
top just before a price drop. These fake buy signals are
usually referred to as a bull trap.
vii. MAs and crossover signals should not be used alone
and it is always safer to combine different TA indicators
in order to avoid fake signals.

Moving Average Convergence

Divergence (MACD)
viii. Traders may also use this indicator to look for crossovers
between the MACD line and its signal line. For example,
if the MACD line crosses above the signal line, that may
suggest a buy signal. Conversely, if the MACD line
crosses below the signal line, that may indicate a sell
signal.
ix. The MACD is often used in combination with the RSI, as
they both measure momentum, but by different factors.
x. Although they are not always accurate, when the MACD
line and signal line cross, these events are usually
deemed as trend reversal signals, especially when they
happen at the extremities of the MACD chart (far above
or far below the zero line).
xi. Centerline crossovers: Centerline crossovers happen
when the MACD line moves either on the positive or
negative area. In other terms, a positive MACD line
suggests a stronger upside momentum, while a negative
one may indicate a stronger drive to the downside.
xii. Signal line crossover: When the MACD line crosses
above the signal line, traders often interpret it as a
 potential buying opportunity (entry point). On the other
hand, when the MACD line crosses below the signal line,
traders tend to consider it a selling opportunity (exit
point).
xiii. While the signal crossovers can be helpful, they are not
always reliable. It is also worth considering where they
take place in the chart as a way to minimize the risks.
For instance, if the crossover calls for a buy but the
MACD line indicator is below the centerline (negative),
market conditions may still be considered bearish.
Conversely, if a signal line crossover indicates a
potential selling point, but the MACD line indicator is
positive (above the zero line), market conditions are still
likely to be bullish. In such a scenario, following the sell
signal may carry more risk (considering the larger trend).
xiv. As most TA indicators, however, the MACD is not always
accurate and may provide numerous false and
misleading signals - especially in relation to volatile
assets or during weak-trending or sideways price action.
Consequently, many traders use MACD with other
indicators - such as the RSI indicator - to reduce risks
and to further confirm the signals.
xv. For example, if the price action of a cryptocurrency
makes a higher high while the MACD creates a lower
high, we would have a bearish divergence, indicating
that despite the price increase, the upside momentum
(buying pressure) is not as strong as it was. Bearish
divergences are usually interpreted as selling
opportunities because they tend to precede price
reversals.
xvi. On the contrary, if the MACD line forms two rising lows
that align with two falling lows on the asset price, then
this is considered a bullish divergence, suggesting that
despite the price decrease the buying pressure is
stronger. Bullish divergences tend to precede price
reversals, potentially indicating a short-term bottom (from
a downtrend to an uptrend).
4. Stochastic RSI (StochRSI)
i. A StochRSI reading above 0.8 is usually considered
overbought, while a value below 0.2 may be considered
oversold. A value of 0 means that the RSI is at its lowest value
in the measured period (the default setting is typically 14).
Conversely, a value of 1 represents that the RSI is at its
highest value in the measured period.
ii. Similarly to how the RSI should be used, an overbought or
oversold StochRSI value doesn’t mean that the price will
surely reverse. In the case of the StochRSI, it simply indicates
that the RSI values (which StochRSI values are derived from)
are near the extremes of their recent readings. It’s also
important to keep in mind that the StochRSI is more sensitive
than the RSI indicator, so it tends to generate more false or
misleading signals. 
iii. Applying simple moving averages (SMA) is one common
method for reducing the risks associated with these false
signals from StochRSI which is “more sensitive and volatile,
and gives more signals than RSI”

Bollinger Bands (BB)

i. They are made up of three lines - an SMA (the middle band),
and an upper and lower band. The settings may vary, but
typically the upper and lower bands are two standard
deviations away from the middle band. As volatility increases
and decreases, the distance between the bands increases
and decreases as well.
ii. Generally, the closer the price is to the upper band, the closer
to overbought conditions the charted asset may be.
Conversely, the closer the price is to the lower band, the
closer to oversold conditions it may be.
iii. Another important concept of BBs is called the squeeze. It
refers to a period of low volatility, where all bands come very
close to each other. This may be used as an indication of
potential future volatility. Conversely, if the bands are very far
from each other, a period of decreased volatility may follow.
TL;DR
Indicators are the weapons of choice for battle-tested technical
analysts. Each player will choose tools that best fit their unique
playstyle to then learn how to master their craft. Some like to look at
market momentum, while others want to filter out market noise or
measure volatility.

But which are the best technical indicators? Well, every trader will
tell you something different. What one analyst will swear is the
ultimate indicator another will dismiss completely. However, there
are some very popular ones, like the ones we’ve listed below (RSI,
MA, MACD, StochRSI, and BB).

Interested to know what they are and how to use them? Read on.

Introduction
Traders use technical indicators to gain additional insight into the
price action of an asset. These indicators make it easier to identify
patterns and spot buy or sell signals in the current market
environment. There are many different types of indicators, and they
are widely used by day traders, swing traders, and sometimes even
longer-term investors. Some professional analysts and advanced
traders even create their own indicators. In this article, we’ll provide
a brief description of some of the most popular technical analysis
indicators that can be useful in any trader’s market analysis toolkit.
1. Relative Strength Index (RSI)

The RSI is a momentum indicator that shows whether an asset is

overbought or oversold. It does this by measuring the magnitude of
recent price changes (the standard setting is the previous 14
periods – so 14 days, 14 hours, etc.). The data is then displayed as
an oscillator that can have a value between 0 and 100.

Since the RSI is a momentum indicator, it shows the rate

(momentum) at which the price is changing. This means that if
momentum is increasing while the price is rising, the uptrend is
strong, and more and more buyers are stepping in. In contrast, if
momentum is decreasing while the price is rising, it may show that
sellers soon might take control over the market.

A traditional interpretation of the RSI is that when it’s over 70, the
asset is overbought, and when it’s under 30, it is oversold. As such,
extreme values may indicate an impending trend reversal or
pullback. Even so, it might be best not to think about these values
as direct buy or sell signals. As with many other technical analysis
(TA) techniques, the RSI may provide false or misleading signals,
so it’s always useful to consider other factors before entering a
trade.
Eager to learn more? Check out our article on the Relative Strength
Index (RSI).

2. Moving Average (MA)

A moving average smooths out price action by filtering out market

noise and highlighting the direction of the trend. As it’s based on
past price data, it’s a lagging indicator.
The two most commonly used moving averages are the simple
moving average (SMA or MA), and the exponential moving average
(EMA). The SMA is plotted by taking price data from the defined
period and producing an average. For example, the 10-day SMA is
plotted by calculating the average price over the last 10 days. The
EMA, on the other hand, is calculated in a way that gives more
weight to recent price data. This makes it more reactive to recent
price action.

As mentioned, the moving average is a lagging indicator. The

longer the period, the greater the lag. As such, the 200-day SMA
will react slower to recent price action than the 50-day SMA.

Traders often use the relationship of the price to specific moving

averages to gauge the current market trend. For example, if the
price stays above the 200-day SMA for a prolonged period, the
asset may be considered to be in a bull market by many traders.
Traders may also use moving average crossovers as buy or sell
signals. For example, if the 100-day SMA crosses below the 200-
day SMA, it may be considered a sell signal. But what exactly does
this cross mean? It indicates that the average price over the last
100 days is now below that of the last 200 days. The idea behind
selling here is that short-term price movements are no longer
following the uptrend, so the trend may be reversing.

Eager to learn more? Check out our article on Moving Averages.

3. Moving Average Convergence

Divergence (MACD)
The MACD is used to determine the momentum of an asset by
showing the relationship between two moving averages. It’s made
up of two lines – the MACD line and the signal line. The MACD line
is calculated by subtracting the 26 EMA from the 12 EMA. This is
then plotted over the MACD line’s 9 EMA – the signal line. Many
charting tools also often incorporate a histogram, which shows the
distance between the MACD line and the signal line. 

By looking for divergences between the MACD and the price action,
traders might gain insight into the strength of the current trend. For
example, if the price is making a higher high, while the MACD is
making a lower high, the market may be reversing soon. What is
the MACD telling us in this case? That price is increasing while
momentum is decreasing, so there is a higher probability of a
pullback or reversal occuring.

Traders may also use this indicator to look for crossovers between
the MACD line and its signal line. For example, if the MACD line
crosses above the signal line, that may suggest a buy signal.
Conversely, if the MACD line crosses below the signal line, that
may indicate a sell signal.
The MACD is often used in combination with the RSI, as they both
measure momentum, but by different factors. The assumption is
that together they may give a more complete technical outlook on
the market.

Eager to learn more? Check out our article on the MACD.

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4. Stochastic RSI (StochRSI)

The Stochastic RSI is a momentum oscillator used to determine
whether an asset is overbought or oversold. As the name suggests,
it’s a derivative of the RSI, as it’s generated from RSI values
instead of price data. It’s created by applying a formula called the
Stochastic oscillator formula to the ordinary RSI values. Typically,
the Stochastic RSI values range between 0 and 1 (or 0 and 100).

Due to its greater speed and sensitivity, the StochRSI can generate
a lot of trading signals that can be tricky to interpret. Generally, it
tends to be the most useful when near the upper or lower extremes
of its range. 

A StochRSI reading above 0.8 is usually considered overbought,

while a value below 0.2 may be considered oversold. A value of 0
means that the RSI is at its lowest value in the measured period
(the default setting is typically 14). Conversely, a value of 1
represents that the RSI is at its highest value in the measured
period.

Similarly to how the RSI should be used, an overbought or oversold

StochRSI value doesn’t mean that the price will surely reverse. In
the case of the StochRSI, it simply indicates that the RSI values
(which StochRSI values are derived from) are near the extremes of
their recent readings. It’s also important to keep in mind that the
StochRSI is more sensitive than the RSI indicator, so it tends to
generate more false or misleading signals. 

Eager to learn more? Check out our article on the Stochastic RSI.

5. Bollinger Bands (BB)

Bollinger Bands measure the volatility of the market, as well as

overbought and oversold conditions. They are made up of three
lines - an SMA (the middle band), and an upper and lower band.
The settings may vary, but typically the upper and lower bands are
two standard deviations away from the middle band. As volatility
increases and decreases, the distance between the bands
increases and decreases as well.
Generally, the closer the price is to the upper band, the closer to
overbought conditions the charted asset may be. Conversely, the
closer the price is to the lower band, the closer to oversold
conditions it may be. For the most part, price will stay within the
bands, but on rare occasions, it may break above or below them.
While this event may not be a trading signal in itself, it can act as an
indication of extreme market conditions.

Another important concept of BBs is called the squeeze. It refers to

a period of low volatility, where all bands come very close to each
other. This may be used as an indication of potential future volatility.
Conversely, if the bands are very far from each other, a period of
decreased volatility may follow.

Eager to learn more? Check out our article on Bollinger Bands.

Closing thoughts
Even though indicators show data, it’s important to consider that the
interpretation of that data is very much subjective. As such, it’s
always useful to step back and consider if personal biases are
affecting your decision-making. What may be a direct buy or sell
signal for one trader might just be market noise for another. 

As with most market analysis techniques, indicators are at their best

when used in combination with each other, or with other methods,
such as fundamental analysis (FA).
The best way to learn technical analysis (TA) is through a lot of
practice. Go to Binance and put your newfound knowledge to the
test!
MA

A crossover signal is created when two different MAs crossover in a

chart. A bullish crossover (also known as a golden cross) happens
when the short-term MA crosses above a long-term one, suggesting
the start of an upward trend. In contrast, a bearish crossover (or
death cross) happens when a short-term MA crosses below a long-
term moving average, which indicates the beginning of a
downtrend. 
One major downside of MAs is their lag time. Since MAs are
lagging indicators that consider previous price action, the signals
are often too late. For instance, a bullish crossover may suggest a
buy, but it may only happen after a significant rise in price. 
Keep in mind, however, that MAs and crossover signals should not
be used alone and it is always safer to combine different TA
indicators in order to avoid fake signals.

EMA