FIN 301 · Analysis Toolkit · Lesson 2 of 4
Moving Averages & Technical Indicators
SMA, EMA, RSI, MACD — the tools professionals use every day.
In this lesson
Moving averages
A moving average smooths out price noise by averaging closing prices over a period.
SMA (Simple Moving Average) — The average of the last N closing prices. The 50-day SMA and 200-day SMA are the most watched.
EMA (Exponential Moving Average) — Gives more weight to recent prices. Reacts faster to new data. The 12-day and 26-day EMAs are used in MACD.
When price is above the moving average, the trend is up. When price is below, the trend is down.
The "golden cross" (50-day SMA crosses above 200-day SMA) is one of the most famous bullish signals. The "death cross" is the opposite — bearish.
RSI (Relative Strength Index)
RSI measures momentum on a scale of 0-100.
Above 70: The stock is overbought — it may be due for a pullback.
Below 30: The stock is oversold — it may be due for a bounce.
Between 30-70: Neutral territory.
RSI is most useful at extremes. A stock with RSI 85 after a huge rally is stretched. A stock with RSI 22 after a sell-off might be a bargain.
RSI (Relative Strength Index)
68
Neutral
MACD (Moving Average Convergence Divergence)
MACD measures the relationship between two EMAs (12-day and 26-day).
MACD line = 12-day EMA minus 26-day EMA.
Signal line = 9-day EMA of the MACD line.
Histogram = MACD line minus Signal line.
When the MACD line crosses above the signal line, it's a bullish signal. When it crosses below, it's bearish. The histogram shows the strength of the trend.
MACD indicator
Combining indicators
No single indicator is reliable on its own. The power comes from confluence — when multiple indicators agree.
Strong buy signal: Price above 50-day SMA + RSI rising from 30 + MACD crossing above signal line. That's three independent signals pointing the same direction.
If indicators disagree (price above SMA but RSI is overbought), the signal is weak — be cautious.
Indicators are backward-looking — they tell you what has happened, not what will happen. Use them as context, not as crystal balls. Combine with news and fundamentals for the best results.
Volume as the ultimate confirmation
Every indicator is more reliable when confirmed by volume. A bullish MACD crossover on 3x average volume is far more significant than one on low volume.
Volume rules of thumb:
- Rising price + rising volume = strong trend (institutions are buying)
- Rising price + falling volume = weak rally (likely to reverse)
- Falling price + rising volume = strong sell-off (institutions are selling)
- Falling price + falling volume = weak decline (selling pressure is exhausting)
For StockPrince, always check volume before committing to a technical thesis. The indicator might say "buy" but volume says "wait."
Scenario 1 of 3
+15 XPYou're evaluating AMD for a weekly challenge. AMD is above its 50-day SMA, RSI is at 62 (neutral-bullish), and MACD just crossed above the signal line yesterday.
What do the technicals tell you?
Scenario 2 of 3
+15 XPTSLA is trading at $245, above its 50-day SMA ($238) but below its 200-day SMA ($260). RSI is at 55. MACD is positive but flattening.
What's your technical read?
Scenario 3 of 3
+15 XPA stock just experienced a 'golden cross' — its 50-day SMA crossed above its 200-day SMA. But the stock has already rallied 15% in the past month.
How should you trade this?
Knowledge check
+50 XP1. What does RSI above 70 typically indicate?
2. What is a "golden cross"?
3. Why should you use multiple indicators together?
Apply what you learned
Apply technical analysis to your next challenge picks