RSI and MACD: Momentum Oscillators Explained

Measuring the Speed of Price

While moving averages identify the direction of a trend, Momentum Oscillators measure the speed and strength of that trend. These tools help traders identify when a directional move has exhausted itself and is due for a mean-reverting pullback.

The Relative Strength Index (RSI)

The RSI is a bounded oscillator running from 0 to 100. It measures the magnitude of recent price changes.

• Overbought (RSI > 70): Indicates the asset has rallied too far, too fast, and is primed for a local correction.
• Oversold (RSI < 30): Indicates the asset has been aggressively sold off and is due for a relief bounce.

The MACD

The Moving Average Convergence Divergence (MACD) visualizes the relationship between two moving averages, producing a histogram that expands and contracts as momentum accelerates or decays. A MACD bullish centerline crossover is heavily utilized to confirm upward momentum.

Hunting Divergences

The most powerful signal these oscillators provide is Divergence. When the price of Bitcoin makes a higher high, but the RSI simultaneously prints a lower high, it indicates that the upward momentum is structurally decaying. This bearish divergence is a high-confidence early warning system utilized by the AlphaSignal AI Engine to trigger trailing stop losses.