Moving Averages, RSI and MACD: What the Indicators Really Measure

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Bitcoin’s 50-day moving average rose above its 200-day average on September 8, a golden cross, and six weeks later CoinDesk counted 19 golden crosses in the shares of bitcoin holder Strategy since 1999, with the stock higher a year later after just 10 of them. Once you have technical indicators explained as formulas run on past prices, a record like that stops looking odd. Moving averages, RSI and MACD each answer one narrow question about recent prices, and knowing that question is what makes each one useful on a chart. A worked RSI example shows how one ordinary trading day can shift the most quoted reading in technical analysis.

Quick answer: Technical indicators are formulas applied to past prices. A moving average measures the average closing price over a set period and shows trend direction with a delay. RSI compares the size of recent gains with recent losses on a scale of 0 to 100. MACD measures the gap between a fast and a slow moving average. None of them sees future prices.


Start With the Chart Basics

Our Technical Analysis Guide covers candlesticks, trendlines and support and resistance, the groundwork these indicators sit on.

Read the Technical Analysis Guide


Common Technical Indicators Explained

Every indicator here starts with the same raw material, a list of closing prices, and runs it through a fixed formula. The formula decides what the indicator can tell you.

IndicatorIntroduced byUsual defaultWhat the formula measuresScale
Simple moving average (SMA)Widely used, no single creator20, 50 or 200 periodsAverage close over the period, every day weighted equallyPrice
Exponential moving average (EMA)Widely used, no single creator12 and 26 periods inside MACDAverage close with extra weight on the newest daysPrice
Relative Strength Index (RSI)J. Welles Wilder, 197814 periodsSize of recent gains compared with recent losses0 to 100
MACDGerald Appel, late 1970s12, 26 and 9 periodsGap between a 12-day and a 26-day EMAUnbounded, around zero

Definitions and defaults from the StockCharts ChartSchool guides to moving averages, RSI and MACD.

Moving averages follow the direction of price, and RSI measures how fast price has been moving. MACD is built from moving averages but read mostly for momentum, which puts it between the two.


Moving Averages Measure Where Price Has Been

Simple and Exponential Averages

A 50-day simple moving average adds up the last 50 closes and divides by 50, and every day in the window counts the same. An exponential moving average gives the newest close a fixed weight of 2 divided by the number of periods plus one. For a 10-day EMA that’s 18.18%, and for a 26-day EMA it’s about 7.4%, which is why short EMAs react faster to a sharp day.

The Delay Is Part of the Design

A moving average is built from closes that have already happened, which means it turns after price turns. A 200-day average needs months of lower closes before it slopes down. That delay filters out noise, and it means a crossover tends to confirm a move that’s well underway.

What Bitcoin’s Golden Cross Recorded

Bitcoin’s September cross recorded one fact: the average of its last 50 closes had moved above the average of its last 200. By October 30, bitcoin was trading near $77,309, below its 50-day average of $81,887 and above its 200-day average of $73,107, according to 24/7 Wall St. The cross was still in place while price had already dropped through the faster line.

Bitcoin is highly volatile, and swings of several percent in a day can carry it across a short average many times before the long ones respond. Our Crypto Trading page covers what tends to move it.


What a Long Golden Cross Record Looks Like

Strategy’s shares give a longer test, because the stock has crossed both ways many times since 1999.

SignalDateShare price at the signal
Golden crossSeptember 15, 2020$15.57
Death crossJanuary 2022$46.83
Golden crossMarch 2, 2023$25.29
Death crossOctober 2025$328.40

Figures from CoinDesk, October 19, 2026. Prices are shown as CoinDesk reported them and appear to be adjusted for Strategy’s 10-for-1 stock split in August 2024.

After the 2023 cross at $25.29, the shares peaked at $473.83 in November 2024. Across all 19 golden crosses since 1999, the record is much flatter:

  • Higher three months later: 11 times
  • Higher 12 months later: 10 times
  • Median 12-month change: a gain of 3.3%
  • Worst outcomes: the two weakest, in 2001 and 2007, were followed by a 61% loss

The average measured the same thing every time, that recent prices sat above older ones. What happened next depended on things outside the price history, like the bitcoin price the company’s balance sheet is tied to.


RSI Measures the Balance of Up and Down Days

RSI looks at the last 14 closes and splits the changes into gains and losses. It divides the average gain by the average loss to get a ratio called RS, then converts it to a 0 to 100 scale with the formula 100 minus 100 divided by (1 + RS). After the first reading, Wilder’s method keeps 13/14 of each previous average and adds 1/14 of the newest day.

A reading of 70 means recent gains have averaged about 2.3 times the size of recent losses. It says nothing about the price level or the next close.


Technical Indicators Explained Through a Worked RSI Example

The figures here are for illustration. A share trades around $50, and over the last 14 sessions it closed higher on 9 days and lower on 5.

  • Total gains: $9.80, an average of $0.70 across the 14 days
  • Total losses: $4.20, an average of $0.30
  • RS: 0.70 divided by 0.30 is 2.33
  • RSI: 100 minus 100 divided by 3.33 is 70.0

The 15th close moves that reading of 70 in a different direction depending on how the day ends.

Day 15 closeAverage gainAverage lossRSI
Up $1.50$0.757$0.27973.1
Unchanged$0.650$0.27970.0
Down $1.50$0.650$0.38662.8

Calculated with Wilder’s smoothing method as set out by StockCharts ChartSchool. Share figures are illustrative.

One ordinary down day pulls an “overbought” reading down to the low 60s. An unchanged close leaves it at exactly 70, because both averages shrink by the same proportion. RSI responds to the mix of recent closes, and in a strong uptrend that mix can stay lopsided for weeks.


MACD Measures the Gap Between Two Averages

The Three Parts

MACD subtracts the 26-day EMA from the 12-day EMA. When the faster average sits above the slower one, MACD is positive, and a wider gap means recent momentum has been stronger. A 9-day EMA of MACD forms the signal line, and the histogram plots the distance between MACD and its signal line.

Reading the Same $50 Share

Say the share now trades at $52.10, with a 12-day EMA of $51.40 and a 26-day EMA of $50.20. MACD is 1.20. If the signal line sits at 1.45, the histogram reads -0.25.

Price is above both averages and MACD is positive. The negative histogram shows MACD has dipped under its own 9-day average, which means the gap between the two EMAs has been shrinking lately. That’s how MACD flags slowing momentum while an uptrend is still in place.

MACD is measured in price units and has no upper or lower limit. A $500 share produces far larger MACD values than a $5 share, and traders read it through crossovers and the zero line, with no fixed overbought level like RSI’s 70.


Why Technical Indicators Often Agree

Put a moving average, RSI and MACD on one chart and they’ll often turn within a few sessions of each other. All three come from the same closing prices, which makes three agreeing indicators closer to one view counted three times. Other parts of the chart carry what they leave out:

  • Price levels: where a market has turned before, covered in
  • Candle shapes: the open, high and low that closing-price formulas ignore, explained in
  • Volume: how much changed hands on the move
  • Scheduled news: rate decisions and data releases, which can push price through any level

SelfMSF’s charts let you add moving averages, RSI and MACD and change their settings [CONFIRM: indicators and settings available on SelfMSF charts].


Key Takeaways

  • Technical indicators are formulas applied to past prices, and each one answers a narrow question about them.
  • Moving averages show trend direction after a delay, and a crossover confirms a move that has already started.
  • RSI compares the size of recent gains and losses, and a reading above 70 can last for weeks in a strong trend.
  • MACD measures the gap between a 12-day and a 26-day EMA, and its histogram shows when that gap is changing.
  • Indicators calculated on the same closes tend to agree, and price levels, candles and volume add information they don’t hold.

Frequently Asked Questions

What is the difference between RSI and MACD?

RSI measures the size of recent gains against recent losses on a fixed 0 to 100 scale, which suits it to spotting stretched moves. MACD measures the gap between a 12-day and a 26-day exponential moving average and has no upper or lower limit. RSI tracks momentum alone, while MACD also carries information about trend direction.

Should you use an SMA or an EMA?

The better choice depends on the job. A simple moving average weights every close equally, which makes it steadier and slower to turn. An exponential moving average puts more weight on recent closes, which helps it react faster but also gives more false turns in choppy markets. Many traders use EMAs for short periods and SMAs for long ones.

What RSI setting do most traders use?

Most traders use the 14-period setting J. Welles Wilder introduced in 1978, and it’s the default on most charting platforms. A shorter setting like 9 periods makes RSI more sensitive and pushes it past 70 or 30 more often. A longer setting smooths the line, and readings beyond those levels become less frequent.

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