Indicators: MA, RSI, MACD, Bollinger
What you learn in 3 minutesA moving average, an RSI, a MACD and a Bollinger band are all arithmetic on prices that have already happened. Each one draws a line, and each line can only react to the numbers it was built from. Read the two cases below: one reader treats the four lines as four separate opinions, the other treats them as four ways of measuring the same past. The second reader can say what each line would have missed, and that is the skill this lesson teaches.
One quiet stretch of EUR/USD, four indicators, 40 pips of movement
| Step | Amount | Note |
|---|---|---|
| The stretch | 1.0850 to 1.0890 | A slow drift of 40 pips over several days, with no large single candle. |
| Moving average (20 periods) | Rose with price | It is the average of the last 20 closes, so a steady drift pulls it up. It showed direction, and it missed the small reversals inside the drift. |
| RSI (14 periods) | Moved from about 50 to about 62 | It compares recent gains with recent losses. A slow drift keeps it mid-range, so it showed no extreme and missed nothing it was built to catch. |
| MACD | Line stayed above its signal line | It is the gap between two moving averages. A steady drift keeps the gap positive, so it showed the drift and missed the day-to-day noise. |
| Bollinger bands (20 periods, 2 standard deviations) | Bands stayed wide, price stayed inside | The bands are the moving average plus and minus a measure of how spread out the closes were. Quiet drift means no squeeze and no touch, so the bands showed nothing to act on. |
| Cost of one standard lot per pip | KSh 1,300 | One pip on one standard lot of EUR/USD is 10 units of the quote currency, converted at the current rate. At about KES 130 to the dollar, 10 x 130 = KSh 1,300. This rate changes, so the figure changes with it. |
| Cost of the 40-pip stretch | KSh 52,000 | 40 pips x KSh 1,300 = KSh 52,000. This is the size of the move the indicators were describing, not a profit. |
A broker may round the pip value, quote a different conversion rate, and charge a spread or commission on top. Those charges vary between brokers and change the figure.
The mistake people make here
The common mistake is to treat four indicators as four independent confirmations. They are not. A moving average, a MACD and a Bollinger middle band are all built from past closes, so in a quiet drift they will all say the same thing, and the agreement feels like evidence when it is only repetition. The reader then adds an RSI reading to the pile and believes four tools have spoken. Instead, ask what arithmetic sits behind each line, then ask what that arithmetic cannot see. A moving average cannot see a reversal until the reversal has already changed the average. An RSI cannot see a trend that grinds upward without large gains. Knowing the gap is the point, not collecting agreement.Check yourself
EUR/USD moves 25 pips while you hold 0.10 lots. At KSh 1,300 per pip on one standard lot, what is the move worth in KSh?
0.10 lots is one tenth of a standard lot, so one pip is KSh 1,300 / 10 = KSh 130. Then 25 pips x KSh 130 = KSh 3,250. The conversion rate used for the pip value can change, so the figure can change.
A 14-period RSI reads 55 after a slow 30-pip rise. Does that tell you the rise was strong?
No. RSI compares recent gains with recent losses, and a slow rise keeps it near the middle. A reading of 55 says gains were slightly larger than losses, not that the rise was strong. The size of the move in pips is a separate figure.