All lessons
Momentum, RSI and MACD
“Overbought” sounds like an instruction to sell. Let’s first see what the indicator actually measures.
Use momentum indicators without turning thresholds into automatic orders.
Momentum describes the strength or rate of recent price movement. RSI compares smoothed recent gains and losses on a scale from 0 to 100. Its period and smoothing matter; it is not a probability of tomorrow's direction.
MACD compares two exponential moving averages. A signal line smooths that difference, while the histogram shows the difference between MACD and its signal. These are related views of price history, not independent evidence.
An RSI above a chosen threshold can persist during a strong trend. Divergence, where price makes a new extreme but momentum does not, describes weakening agreement; it does not schedule a reversal. Specify one role and test it with price context.
Let’s use numbers · hypothetical example
Hypothetically RSI stays above 70 while EUR/USD rises from 1.0800 to 1.0900. Selling simply because it first crossed 70 would oppose a continuing move. Record the signal and the subsequent path rather than choosing a favourable endpoint.
Keep in mind
Adding several price-derived indicators can create the illusion of independent confirmation.
Your turn
Find a trend where an RSI threshold persisted and a range where the same threshold behaved differently.
A quick check before we move on
Does RSI 75 mean a 75% chance of falling?
- Yes, by definition
- Only on an hourly chart
- No, it is an indicator reading
Check answer
No, it is an indicator reading RSI is a transformation of gains and losses, not a calibrated probability.
Sources and further reading
Content reviewed: 29 October 2026
Educational material with hypothetical examples. Trading can cause substantial losses. A course, pattern, stop order or past result cannot guarantee a profit or limit every loss. Practise in simulation and check current rules and product terms in your jurisdiction.
