RSI, MACD & Bollinger Bands Explained

A moving average smooths out price into a single line by averaging recent prices. The "exponential" version weights recent prices more heavily than older ones, so it reacts faster to new price action than a simple average.

The most common use: when price is above the EMA, it suggests an uptrend; below it, a downtrend. Traders also watch for price "bouncing" off the EMA as a potential support or resistance level, and for shorter and longer EMAs crossing each other as a trend-change signal.

Bollinger Bands plot three lines: a middle moving average, and an upper and lower band set a certain distance (based on volatility) above and below it. When the market is calm, the bands sit close together; when volatility spikes, they widen.

Price touching or pushing outside the upper band is sometimes read as "overbought," and the lower band as "oversold" — but in a strong trend, price can ride along a band for an extended period, so this isn't a standalone reversal signal. A classic pattern to watch for is a "squeeze" — bands narrowing tightly — which often precedes a sharp move once volatility returns.

VWAP calculates the average price a coin has traded at over a session, weighted by volume — meaning price levels where more trading actually happened count more heavily than levels with thin volume. It's widely used by larger traders as a benchmark: buying below VWAP or selling above it is often considered getting a "good" price relative to the session's average.

RSI measures the speed and size of recent price changes on a scale from 0 to 100, based on the ratio of recent gains to recent losses. Readings above 70 are traditionally considered "overbought" (price has risen fast and may be due to cool off); readings below 30 are considered "oversold."

Like Bollinger Bands, RSI can stay "overbought" for a long time during a strong trend — treat the 70/30 levels as a prompt to pay closer attention, not an automatic buy or sell signal on their own. Many traders also watch for RSI "divergence": when price makes a new high but RSI doesn't, it can hint that upward momentum is fading even though price is still rising.

MACD compares two EMAs (typically 12-period and 26-period) to gauge momentum. It plots the difference between them as the MACD line, a smoothed "signal line" of that difference, and a histogram showing the gap between the two.

The most common signal: when the MACD line crosses above the signal line, it's read as bullish momentum building; crossing below is read as bearish momentum building. The histogram's size shows how strong that momentum is — a shrinking histogram, even while still positive, can indicate momentum is fading before a crossover actually happens.

ATR measures volatility — specifically, the average size of a coin's price range over recent periods — without indicating direction at all. It doesn't tell you whether price will go up or down, only how much it's been moving.

ATR is especially useful for setting stop-losses that make sense for a coin's actual behavior: a stop that's too tight relative to ATR gets hit by normal noise, while one that's too wide relative to ATR unnecessarily risks more than the trade needs to.

No indicator is reliable in isolation — they each answer a narrow question (trend, momentum, volatility, overbought/oversold), and real market context ties them together. A common approach: use EMA or MACD to establish the trend direction, RSI to time entries within that trend, and ATR to size your stop-loss appropriately. Layering two or three complementary indicators tends to filter out more false signals than relying on any single one.