RSI and MACD: using oscillators without falling into their traps
Also in: FR Français · ES Español · DE Deutsch
“RSI above 70, time to sell” is the rule that loses the most money. What RSI and MACD really measure, and how to use them intelligently.
- RSI measures the speed of gains relative to losses on a 0–100 scale.
- In a strong trend, RSI can stay “overbought” for a very long time.
- MACD compares two exponential averages (12 and 26) with a signal line (9).
- Divergences are more useful than overbought/oversold levels.
Oscillators are bounded or centred indicators that measure price momentum. RSI and MACD are the two most used. They are easy to display — and all the easier to misread.
RSI (Relative Strength Index)
Created by J. Welles Wilder and published in 1978, RSI compares the average size of gains with that of losses over a period, 14 by default:
RSI = 100 − 100 ÷ (1 + RS)
The result ranges from 0 to 100. Above 70 is called overbought; below 30, oversold. An RSI of 80 only means recent gains have been much larger than recent losses.
Trap #1: selling because RSI hits 70
In a strong uptrend, RSI can stay above 70 for weeks. Shorting every overbought reading is like standing in front of a train. A high RSI is first a sign of strength, not weakness.
What works better
- Regime ranges: in an uptrend, RSI often oscillates between 40 and 80; in a downtrend, between 20 and 60. An RSI that can no longer get above 60 during a rally is a warning sign.
- Divergences: a new price high with a lower RSI points to fading momentum. As with cumulative delta, a divergence matters at a key level.
- Pullbacks in a trend: in an uptrend, RSI dipping back to 40–50 at support often marks an entry point.
MACD (Moving Average Convergence Divergence)
Developed by Gerald Appel in the late 1970s, MACD has three parts:
Signal line = EMA(9) of the MACD line
Histogram = MACD − signal
The MACD line measures the gap between a fast and a slow exponential moving average. Positive means the short-term trend is up; negative, down. The histogram shows whether that gap is widening (acceleration) or narrowing (deceleration).
Classic reads
- Signal-line cross: MACD crossing above the signal = upside momentum resuming. Frequent, and often noisy in ranges.
- Zero-line cross: slower but more meaningful; it matches the 12/26 EMA crossover.
- Shrinking histogram: the trend continues but loses speed; useful for trimming a position or tightening a stop.
- Divergences: as with RSI, the most informative.
RSI or MACD?
| RSI | MACD | |
|---|---|---|
| Scale | Bounded 0–100 | Unbounded, centred on 0 |
| Strength | Spotting extremes and divergences | Tracking trend acceleration |
| Weakness | False reversal signals in trends | Late signals, many crossovers in ranges |
Both are derived from price: they add no information price does not already contain. Stacking them (RSI + MACD + stochastic) creates an illusion of confirmation when you are reading the same thing three times. Better to pair one oscillator with different information: volume, order flow, key levels.
Rule of thumb: use the trend to choose the direction, the level to choose the place, and the oscillator only to choose the timing.
RSI and MACD switch on in one click in the terminal’s candlestick mode. Tag divergence trades in the simulator’s “setup” field: after 30 trades, your statistics will tell you whether that read really pays.
Educational content only — not investment advice. Trading involves the risk of losing capital.