Technical Analysis — Moving Averages, RSI, and MACD
Technical analysis studies historical price and volume data to identify patterns and trends, with the underlying premise that all publicly available information is already reflected in the price. Moving averages smooth price data to identify trend direction. The 50-day simple moving average (SMA) averages closing prices over the prior 50 trading days; the 200-day SMA averages the prior 200 days. A Golden Cross — when the 50-day MA crosses above the 200-day MA — is a traditionally bullish signal indicating the shorter-term trend has strengthened above the longer-term trend. A Death Cross (50-day crosses below 200-day) is traditionally bearish. The Relative Strength Index (RSI) is a momentum oscillator measuring the speed and magnitude of recent price changes on a scale of 0 to 100. RSI above 70 is conventionally considered overbought — the asset may have risen too far too fast and a correction is possible. RSI below 30 is oversold — potential buying opportunity as selling pressure may be exhausted. RSI is most useful in ranging (non-trending) markets; in strong trends, overbought assets remain overbought as momentum persists. The MACD (Moving Average Convergence Divergence) shows the relationship between two exponential moving averages (typically 12-day and 26-day EMAs). The MACD line minus the signal line (9-day EMA of MACD) creates a histogram — positive values indicate bullish momentum, negative values bearish momentum. MACD crossovers (MACD line crossing signal line) generate buy/sell signals. Technical analysis is most useful as a timing and risk management tool for investors who have already identified fundamentally sound assets.