Indicators: MA, RSI, MACD, Bollinger
What you learn in 3 minutesThis lesson shows what four common indicators — moving average, RSI, MACD and Bollinger Bands — actually calculate, so you can tell what each one can and cannot react to. On a EUR/USD chart near 1.0850, one pip on one standard lot is 10 units of the quote currency, which at that rate is about ₱10, so a 20-pip move is about ₱200. Every indicator here is arithmetic on past prices drawn as a line, and none of them knows anything about the future.
One 20-pip move, four indicators
| Step | Amount | Note |
|---|---|---|
| Price move | 20 pips | EUR/USD moves from 1.0850 to 1.0870 |
| Value on one standard lot | about ₱200 | 20 pips x 10 units per pip = 200 units, converted at 1.0850 |
| Moving average | lags by half its length | a 20-period average turns after price has already moved |
| RSI | moves toward 70 | it measures the size of recent gains against recent losses |
| MACD | line crosses its signal | it compares two moving averages of price |
| Bollinger Bands | price touches the upper band | the bands widen or narrow with recent volatility |
Your broker may round the peso conversion, add a spread, and charge commission or swap, so the cash figure on your statement can differ from this estimate.
The mistake people make here
The common mistake is to treat an indicator as a signal that tells you what to do. A moving average only averages old prices, so it turns after the move; RSI only compares recent gains and losses, so it can stay high in a strong trend; MACD only compares two averages, so it lags; Bollinger Bands only measure how spread out recent prices were. Use them to describe what has already happened on the chart, and check the price itself before acting.Check yourself
EUR/USD is at 1.0850 and moves 15 pips against you on one standard lot. What is the loss in pesos at that rate?
15 pips x 10 units per pip = 150 units of the quote currency; 150 x 1.0850 = ₱162.75, before any spread, commission or swap.
A 20-period moving average is drawn on a chart. How many past candles does it use, and does it include the current candle?
It uses the last 20 closes, and the current candle is included once it has a price, so the line changes as that candle moves.