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What each of four common indicators summarizes, and how far you can trust each one.
An indicator is a summary, not a prophecy. Once you know what it summarizes, you also know when it is wrong.
An indicator is what you get when you run price through a formula. Once you know the formula, it is clear what the indicator says and what it does not. Exact definitions are in the glossary. This article only covers how to read them.
The 200-day moving average is roughly the average price paid by people who bought over the last 200 days. When price is above it, most people who bought in the past year are in profit. Below it, they are at a loss. When the 50, 150 and 200-day lines are stacked in that order from the top, short, medium and long-term buyers are all in profit. It is a lagging indicator, so it cannot announce the start of a trend. It only confirms it.
It is the difference between a short average and a long average. A widening gap means short-term strength is growing, and a narrowing gap means it is fading. Above zero, the short average is above the long one. Below zero, it is the other way around. A more useful warning than the lines crossing is divergence, where price makes a new high while MACD gets lower.
It compares the strength of up days and down days over the last 14 days. Above 70 means price has risen a lot recently, not that it will fall soon. In a strong trend, RSI stays above 70 for a long time. Reversals at 30 and 70 work well in a range and poorly in a trend. The indicator is not wrong. The regime is different.
It is not a price indicator. It shows participation, and it tells you how much to trust the other indicators. A signal without volume is a minority opinion.
One indicator is one point of view. Stretches where moving average (position), MACD (strength), RSI (speed) and volume (participation) all point the same way are rare, and that rarity is what makes them useful. Confluence Zone shows how much nine such indicators overlap as a score.
Confluence Zone calculates its indicators the TradingView way (EMA starts from an SMA, RSI uses Wilder smoothing). Indicators with the same name give different values when the calculation differs, so match the definitions first before comparing numbers with another tool.
This article does not provide trading signals based on indicators. Other tools may calculate differently, so we do not guarantee matching values. Everything here is reference information based on past, public data and is not investment advice.
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