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Education · Technical Analysis · Chapter 3 of 4

Complex indicators

6 min03 / 04

Once you're comfortable with MA and RSI, two more indicators add dimension: MACD for momentum and Bollinger Bands for volatility.

MACD (Moving Average Convergence Divergence)

MACD is the difference between two exponential MAs (typically 12 and 26), plus a signal line (a 9-period MA of that difference). The histogram below visualizes the gap between MACD and the signal line.

MACDSignalHistogram
Histogram above zero = bullish momentum. MACD/signal line crossovers are common triggers.

The most common signal: MACD crosses the signal line from below → bullish momentum; from above → bearish. Divergence between MACD and price (price makes a new high but MACD doesn't) is a classic early warning.

Bollinger Bands

Bollinger Bands have three lines: a middle MA (typically MA20) and two bands placed ±2 standard deviations. The bands widen when volatility rises and contract when things are quiet.

A squeeze (tight bands) often precedes large moves. A touch of the outer band isn't automatically a reversal signal.

Common mistake: treating a touch of the upper band as an automatic sell. In a strong trend, price can 'walk' along a band. Combine with trend confirmation before acting.

Indicators don't predict the future, they summarize the past. Always pair them with broader market context.

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