Indicators don't predict — they confirm or contradict your thesis.
What you will learn
Understand RSI and overbought/oversold
Read MACD crossovers and divergence
Use volume to confirm moves
Overbought/oversold
Overbought/oversold
Momentum shifts
Momentum shifts
RSI: momentum oscillator
The Relative Strength Index (0-100) measures the speed of price changes. Above 70 = overbought (stretched up); below 30 = oversold (stretched down). But overbought can stay overbought in a strong trend — RSI is a condition, not a trade signal by itself.
💡 RSI in context
In a raging uptrend, RSI can sit above 70 for weeks — selling 'because overbought' means fighting the trend. RSI is most useful for divergence: price makes a new high but RSI makes a lower high, warning the momentum behind the move is fading.
MACD: trend momentum
MACD plots the relationship between two moving averages. The MACD line crossing above the signal line is a bullish crossover; below is bearish. The histogram shows momentum. MACD divergence — price up, MACD down — flags a weakening trend.
Volume is the referee
Volume confirms whether a move has conviction. Breakouts on high volume are far more reliable than those on thin volume. Rising price on falling volume is a warning — fewer buyers are pushing it up, and the move may reverse.
💡 The fake breakout
Price breaks above resistance but volume is anemic — the breakout is suspect and often fails. A true breakout shows volume expanding as price pushes through. 'Price tells you what happened; volume tells you whether to believe it.'
Indicators are secondary
Price is primary; indicators are derived from it. No indicator predicts the future — they organize the past into readable form. The discipline is: form a thesis from price and structure, then use RSI/MACD/volume to confirm or reject it.
❓ Quick check
RSI above 70 generally means:
A) Oversold
B) Overbought (stretched up)
C) Neutral
D) A buy signal
Above 70 = overbought.
(Knowledge check — full exam is next)
Key takeaways
RSI = momentum (overbought/oversold + divergence)
MACD = trend momentum (crossovers + divergence)
Volume confirms; price is primary, indicators are secondary
📝 Weekly Exam — pass with 80% to unlock next week
10 questions. Review the Deep Dive and courses before attempting.
1. RSI measures:
Momentum oscillator.
2. RSI above 70 is typically:
Overbought condition.
3. RSI divergence means:
Momentum fading.
4. MACD is based on:
Two moving averages' relationship.
5. A bullish MACD crossover is:
MACD crosses above signal line.
6. A breakout on thin volume is:
Lacks conviction.
7. Rising price on falling volume suggests:
Fewer buyers pushing.
8. The primary signal in technical analysis is:
Price is primary.
9. Indicators are best described as:
They organize, not predict.
10. The correct use of RSI/MACD is to:
Confirmation, not signal.
Your score: —
🛠 Weekly Project
Find one real divergence.
1
Open a daily chart and add RSI and MACD.
2
Look for a price high that RSI/MACD did not confirm (divergence).
3
Note the volume on that high.
4
Write 2 sentences on what the divergence + volume told you.