Indicators: EMA and RSI
Lesson 22 of 39 in the course “Crypto”. Free, with animations and a quiz.
An indicator is a formula that calculates something from past prices and draws a line. EMA is the average price over N candles (for example, N = 20), with recent candles weighted more. Price above a rising EMA: bullish backdrop, buyers are stronger.
RSI shows the strength of recent moves on a 0 to 100 scale. It is usually calculated over 14 candles. Above 70: overbought (overheated), below 30: oversold. 70 and 30 are common thresholds, not laws.
Price is at the high and RSI is above 70. That is not a sell signal. It is a reason not to open new buys on emotion. If you are already in a trade, you can think about taking partial profit. Overbought can last a long time.
Price closed below the EMA: the uptrend is in question. Indicators lag because they are calculated from candles that already happened. They confirm what already happened, they do not predict the future.
Check yourself
- RSI above 70 means...
Correct answer: Overbought, a pause or pullback is possible. Above 70 the rise was sharp and the market is overheated. It is a hint, not an order: in a strong trend RSI can stay above 70 for a long time. - Price is above a rising EMA. How do you read it?
Correct answer: Bullish backdrop, buyers are stronger. A rising EMA means the average price is going up. Price above it shows buyers have the edge. - What is true about indicators?
Correct answer: They lag and confirm. Indicators are calculated from past prices, so they lag the market. They help confirm the picture but do not replace a plan and risk control.