Oscillators: RSI, MACD and Stochastic
The momentum indicators that measure strength and possible exhaustion.
Oscillators live in a sub-chart below price and measure momentum: how strong a move is and whether it is running out of steam.
RSI
A value from 0 to 100 indicating the strength of the move.
- How to read it: above 70 = “overbought” (a move very extended to the upside), below 30 = “oversold”. Divergences with price (price rising but RSI not) warn of a possible slowdown.
- Parameters: period (usually 14), 70/30 thresholds.
MACD
Compares two moving averages to measure the acceleration of the trend.
- How to read it: the crossover between the MACD line and its “signal line”, and the histogram growing or shrinking, show when momentum changes.
- Parameters: the three periods (classically 12, 26, 9).
Stochastic
Tells you where price closes relative to its recent range.
- How to read it: high values = closes near the recent highs, low = near the lows; useful for timing and divergences.
- Parameters: %K and %D periods, overbought/oversold thresholds.
Oscillators are at their best together with context (trend, levels, order flow): on their own they produce many false signals in directional phases.