The school · indicators
Trading indicators, explained
A trading indicator is a calculation made from past prices (and sometimes volume) and drawn on or under the chart. RSI measures the share of recent movement that was upward; MACD measures the gap between two moving averages and how fast it changes; a moving average is the mean price over a window; Bollinger Bands and ATR measure how far price usually moves. Because every indicator is built from prices that have already printed, every indicator lags, and none of them knows what comes next. Several indicators agreeing can still be one fact counted three times, because they are made from the same input. The school teaches each indicator as the arithmetic it is — what it measures, what it lags, and the conventions (such as RSI 70/30) that are habits rather than laws.
Is RSI overbought at 70 a sell signal?
No. 70 and 30 are conventions, not rules. A reading above 70 says recent movement has been mostly upward; in a strong trend RSI can stay above 70 for a long time while price keeps rising. The school teaches what the number measures, not what to do when it crosses a line.
Which indicators should a beginner learn?
Learn to read price first — candles, levels, structure — and then one indicator at a time, starting with what it is calculated from. Moving averages and ATR are good first indicators because their arithmetic is simple and what they cannot tell you is easy to see.
Module
RSI
The share of recent movement that was upward — and nothing about what comes next The module
- RSI
- Relative Strength Index: the share of recent close-to-close movement that was upward, on a scale of 0 to 100, over a window that is fourteen bars by default. Built from closes only.
- Average gain and average loss
- The two averages RSI is made of: the mean size of the rises and of the falls between consecutive closes over the window, carried forward with Wilder's smoothing. RSI is the gain average's share of their sum.
- Lookback window
- How many bars an indicator averages. A short window makes every close count for more and the line jumpier; a long one makes it smoother and slower. A reading means nothing without it.
- Wilder's smoothing
- Carrying an average forward by blending in each new value with a weight of 1 in n, instead of recomputing from scratch. Used by RSI and ATR; old values fade rather than drop out.
- Overbought and oversold
- Labels for RSI above 70 and below 30. In arithmetic, above 70 means recent rises outweighed falls by more than two to one. A description of the past, not a verdict on price.
- The 70/30 convention
- Wilder's choice of where to draw the lines. Some traders use 80/20 or change them by instrument. A convention can be useful without being a property of the market.
- Oscillator
- An indicator that moves inside a fixed range, like RSI from 0 to 100. Its bounds are made by the formula, not by the market, so "near the top" says nothing about price being high.
- RSI divergence
- Price makes a higher high while RSI makes a lower one, or the mirror at lows. It records that the latest push was more two-sided than the one before. It does not date a reversal.
- Choosing the swing points
- Every divergence compares two specific highs or lows. Change which ones and it can appear or vanish, so a divergence is only a claim once both points are named.
- Stochastic RSI
- Where the latest RSI reading sits between the lowest and highest RSI of the window, from 0 to 1. An indicator of an indicator: faster, noisier, and built from the same closes.
- Indicator lag
- An indicator can only change when a new bar changes its inputs, and each bar is a small fraction of the window. It describes the recent past, always a little after the fact.
- MACD
- Moving Average Convergence Divergence: a family of three lines built from two exponential averages of the closes, usually 12 and 26 periods, and a 9-period average of their gap.
- MACD line
- The 12-period EMA of the closes minus the 26-period EMA. How far the fast average is ahead of the slow one, in price points — a measure of recent pace, not of level.
- Signal line
- A 9-period EMA of the MACD line. An average of the gap between two averages, which is why it trails the MACD line and moves more slowly.
- MACD histogram
- The MACD line minus the signal line. Whether the gap between the averages is widening faster or slower than its own recent average — a difference of a difference.
- 12/26/9
- The standard MACD settings: fast EMA, slow EMA, signal EMA. A default, not a law — a MACD on other settings is a different number, so a reading needs its settings to mean anything.
- Price units
- MACD is a difference of two prices, so it is quoted in the instrument's own points. It cannot be compared across instruments, or across years when price was far lower.
- Zero-line cross
- The MACD line crossing zero, which is the 12-period EMA crossing the 26-period EMA — a moving-average crossover in different clothes, with the same lag.
- Signal-line cross
- The MACD line crossing its signal line, which is the histogram crossing zero. Three layers of averaging from the closes, so always late, and frequent in sideways markets.
- MACD divergence
- Price makes a higher high while the MACD line makes a lower one, or the mirror at lows. A record that the later push had less recent pace behind it, not a forecast of a turn.
- Pace versus direction
- A market can keep moving the same way while moving more slowly. Momentum indicators measure the pace; only the price structure says whether the direction has changed.
- Moving average
- The average of the last n closes, recalculated every bar. A smoothed record of the typical recent close, which by construction sits behind price, never ahead of it.
- SMA
- Simple moving average: the last n closes added up and divided by n. Every close in the window counts equally and drops out completely when it leaves.
- EMA
- Exponential moving average: each bar it moves a fraction 2 ÷ (n + 1) of the way towards the new close. Every close stays in, with a weight that shrinks each bar.
- Lag of an average
- On a steady trend, an n-period SMA or EMA trails price by about (n − 1) ÷ 2 bars. The EMA only reacts faster in the first bars after a sudden change.
- Drop-off effect
- An SMA changes by the new close minus the close leaving the window, divided by n. It can turn because of a close from long ago, not because of anything today.
- 200-day moving average
- The simple average of the last 200 daily closes, about forty weeks. Watched mostly because it is widely watched; it trails a steady trend by about a hundred trading days.
- Golden cross
- The 50-day average crossing above the 200-day: the last 50 closes now average higher than the last 200. A late summary of a rise that is already well under way.
- Death cross
- The 50-day average crossing below the 200-day: the last 50 closes now average lower than the last 200. As late, by construction, as a golden cross.
- Moving-average crossover
- A faster average crossing a slower one. It confirms a move after the fact and crosses back and forth in sideways markets; MACD's zero-line cross is one.
- Price above its average
- Recent closes are higher than the typical close of the window. Useful context about the past; not a level that holds, and not a trend definition.
Module
Volatility and bands
Bollinger bands, the squeeze and ATR — how much, never which way The module
- Bollinger bands
- A 20-period simple average of the closes with bands two standard deviations above and below it. A measure of how widely the recent closes spread around their average.
- Standard deviation
- How far a set of numbers typically sits from its own average: the square root of the average squared distance. Bollinger bands use it on the closes of the window.
- Middle band
- The simple moving average the bands are built around, 20 periods by default. Everything said about moving averages, including their lag, applies to it.
- %b
- Where the close sits between the bands: 0 at the lower, 1 at the upper, 0.5 at the middle. Above 1 means outside the upper band. A position relative to recent spread, nothing more.
- Bandwidth
- The distance between the bands divided by the middle band. Lets the width be compared over time; a low value means the recent closes have been very similar.
- Squeeze
- Bandwidth at a low value relative to its own history: volatility has contracted. It contains no direction, no timing and no size for whatever comes after.
- Walking the band
- Close after close near one band while the band moves with them — what a steady trend looks like on Bollinger bands. A one-sided sequence, not a stretched market.
- Bollinger plus RSI
- Pairing a band touch with an RSI extreme. Both are computed from the same recent closes and usually fire on the same bar, so the pair is one event described twice.
- True range
- The largest of high minus low, high minus previous close, and previous close minus low. Ordinary range plus any gap from the previous close.
- Distance in ATRs
- A price distance divided by the current ATR. Turns "ten points" into "two and a half typical bars", which means the same thing on a quiet day and a busy one.
- Volatility clustering
- Quiet stretches tend to be followed by quiet ones and busy by busy, until they are not. A regularity about the size of moves that says nothing about their direction.
Module
Volume, anchors and confluence
Tick volume, VWAP, Fibonacci — and why three agreeing indicators can be one fact The module
- Tick volume
- A count of price updates in a period on one broker's feed. What most spot gold and FX charts show as volume, because over-the-counter markets have no central record of trades.
- Exchange volume
- The number of contracts actually traded, counted by the exchange — as on gold futures. Spot markets have nothing equivalent, only each feed's own activity count.
- Climax volume
- An unusually busy, usually wide bar at the end of an extended move. Commonly read as exhaustion; the bar records activity and range, never whose orders they were.
- Volume profile
- Volume shown per price over a chosen stretch, instead of per bar. Shows where trading concentrated — on spot gold, where the ticks concentrated.
- Point of control
- The single busiest price band in a volume profile. A record of where most activity happened in the chosen stretch, which changes if the stretch changes.
- Value area
- The range around the point of control holding about 70% of the profile's volume. The 70% is a convention, not a law.
- VWAP
- Volume-weighted average price: the sum of price times volume divided by total volume, from an anchor such as the session start. The average price where the activity actually was.
- Anchored VWAP
- A VWAP whose count starts at a point someone chose — a swing low, a release. A different anchor gives a different line, so the anchor is part of the reading.
- Fibonacci retracement
- Lines at 23.6%, 38.2%, 50%, 61.8% and 78.6% of a chosen swing. A widely drawn convention; nothing in the market is derived from the sequence, and 50% is not a Fibonacci ratio.
- The chosen swing
- Retracement levels depend entirely on which low and high are picked. A different swing gives five different lines, so a level needs its swing named.
- Indicator confluence
- Several indicators pointing at the same reading. Worth something only in proportion to how many genuinely different inputs they are built from.
- Correlated indicators
- Indicators computed from the same input, such as RSI, MACD and Bollinger bands from the closes. Their agreement is expected, so counting them separately overstates the evidence.
- Independent inputs
- Evidence from different sources — a level's history, the time of day, a scheduled release, volume, structure. Describe a chart once per input, not once per indicator.
More: the full glossary, the chart reading guides, Otus, the AI tutor and the teaching standards.
Education only. Nothing here is a recommendation to buy or sell anything, and nothing predicts where price will go.
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