Indicators: MA, RSI, MACD, Bollinger
What you learn in 3 minutesA reader asked: "I see four lines on my chart called MA, RSI, MACD and Bollinger. Do they tell me four different things, or the same thing four times?" This lesson answers that. Each one is arithmetic done on past prices, drawn as a line. Once you know which arithmetic, you know what it can react to and what it cannot. That matters in rand: on USD/ZAR at 18.4100, a 0.0100 move on 0.10 lots is about R10, and no indicator changes that sum.
One section, four indicators, one R10 move
| Step | Amount | Note |
|---|---|---|
| The section | USD/ZAR moves 18.4100 to 18.4200, then back to 18.4100 | a 0.0100 round trip, chosen for easy arithmetic |
| Moving average | the line barely moves | it averages past closes, so one small round trip is diluted |
| RSI | rises, then falls back | it compares recent gains with recent losses, so it reacts to the move |
| MACD | a small bump in the histogram | it measures the gap between two averages of past prices |
| Bollinger bands | price stays inside the bands | the bands sit a set distance from a moving average |
| Money on 0.10 lots | about R10 for the 0.0100 move | 0.0100 divided by 0.0001 is 100 pips; 100 x R0.10 per pip on 0.10 lots |
Your broker sets the pip value, the spread and any commission, and these vary between brokers. The R10 is a worked figure, not a promise of what you would receive.
The mistake people make here
The common mistake is treating four indicators as four independent opinions and waiting for all four to agree before doing anything. They are not independent: all four are built from the same past prices, so they often say the same thing in different words. The moving average and Bollinger bands both use averages, and MACD uses two averages of its own. Instead, pick one question you want answered, such as "is the recent move large compared with recent noise", and choose the one indicator whose arithmetic answers that question. Then check the rand cost of the move on your lot size before you act, because the indicator says nothing about spread or commission.Check yourself
USD/ZAR moves 0.0100 and you hold 0.10 lots. Using R0.10 per pip on 0.10 lots, what is the gross move in rand?
0.0100 divided by 0.0001 is 100 pips. 100 x R0.10 = R10. That is before spread and commission, which vary between brokers.
If the same 0.0100 move happens but the moving average barely changes, does that mean the moving average is broken?
No. A moving average is an average of past closes, so a small round trip is diluted. It is arithmetic, not a fault.
You want an indicator that reacts to recent gains and losses. Which of the four fits?
RSI. It compares recent gains with recent losses. MACD compares averages, and Bollinger bands measure distance from an average.