Indicators: MA, RSI, MACD, Bollinger
You will not learn a signal here. You will learn which arithmetic sits behind each line, and you will see one price chart read four ways.
What the moving average and MACD share
A moving average takes the closing prices of the last chosen number of periods, adds them, and divides by that number. A 20 period moving average on a daily chart adds the last 20 daily closes and divides by 20. Tomorrow it drops the oldest close and adds the newest one. The line you see is that running average drawn from left to right.
MACD starts from two moving averages, usually 12 period and 26 period, and subtracts the slower one from the faster one. That subtraction is the MACD line. A third average, usually 9 period, is taken of the MACD line itself to give the signal line. Every number in MACD is therefore an average of past closes, just arranged differently.
This shared origin has a practical consequence. When price rises steadily, the 12 period average sits above the 26 period average, and both sit above the longer average behind them. A moving average turns up and MACD turns up at roughly the same time because they are reading the same closes. Their agreement is one fact about price, not two independent votes.
Relative strength index and its bounded scale
RSI compares the average size of recent gains with the average size of recent losses over a chosen period, commonly 14. It divides average gain by average loss, then scales the result to sit between 0 and 100. A reading near 70 means gains have recently outweighed losses by a wide margin. A reading near 30 means the opposite.
The scale is bounded, and that bound matters. RSI cannot go above 100 or below 0, no matter how far price travels. If USD/INR rises for many days in a row, RSI can sit near 70 for weeks while price keeps climbing. A high reading is not a ceiling on price. It only describes the recent balance of gains and losses.
Because RSI uses gains and losses rather than a simple average of closes, it can move when a moving average barely changes. A sharp two day fall after a quiet month shifts the gain and loss balance quickly. The moving average over 20 days absorbs that fall slowly. Two lines on the same chart can therefore tell different stories without either being wrong.
Bollinger bands and the volatility input
Bollinger Bands begin with a moving average, usually 20 periods, drawn as the middle line. The upper and lower bands are placed a chosen number of standard deviations away from that middle line, commonly two. Standard deviation measures how spread out the recent closes are around their average.
When closes cluster tightly, standard deviation is small and the bands narrow. When closes spread out, the bands widen. The width of the band is therefore a direct reading of recent volatility, not a direction. A narrow band says price has been quiet. It does not say which way price will leave that quiet.
This makes Bollinger Bands the only one of the four built from a spread measure rather than a gain or loss balance. On USD/INR near 83.2500, a 20 pip move is ₹200 on one standard lot. A quiet week may produce a band width smaller than that, while a news day widens it sharply. The arithmetic responds to the size of moves, not their sign.
One chart, four indicators, 20 pips
| Step | Amount | Note |
|---|---|---|
| Price move | 20 pips | USD/INR moves from 83.2500 to 83.2520 |
| Value of that move | ₹200 | 20 pips x ₹10 per pip on one standard lot |
| Moving average | turns up | the average of the last 20 closes starts to rise, but it lags the move |
| RSI | rises to 58 | the ratio of average gains to average losses over 14 periods, still below 70 |
| MACD | histogram grows | the gap between two moving averages widens, so the bars get taller |
| Bollinger Bands | price stays inside | the move is smaller than recent volatility, so the bands do not react |
Your broker may round the pip value, charge a spread on entry and exit, or quote USD/INR at a slightly different rate. The ₹10 per pip figure is a standard-lot calculation, not a promise of what you keep.
Doing it once, step by step
Work through these in order on a demo chart of USD/INR, using daily closes and the default settings named in each step. The aim is to see what each line is made of, not to find an entry.
- 01
Open a daily chart of USD/INR
Choose a daily interval so each point is one closing price. Note the current level near 83.2500 as a reference. Do not add any indicator yet. Look only at the price line for a minute.
- 02
Add a 20 period moving average
Set the period to 20 and leave the input as close. Watch how the line lags behind turning points in price. Count how many days it takes to change direction after price does.
- 03
Add MACD with 12, 26 and 9
Keep the standard settings. Compare the moments when the moving average turns with the moments when the MACD line crosses its signal line. Note how often they happen close together, because both use averages of closes.
- 04
Add RSI with a 14 period setting
Watch the 0 to 100 scale and find a stretch where the reading stays above 70 while price continues higher. This shows the bound is a description, not a limit on price.
- 05
Add Bollinger Bands at 20 periods and two standard deviations
Measure the distance between the upper and lower band on a quiet week and on a busy week. Relate that distance to the ₹10 per pip figure on one standard lot, so a 20 pip band width equals ₹200.
- 06
Write one sentence per indicator
For each of the four lines, write what arithmetic it uses and what it cannot react to. Keep the sentences short. If two lines share an input, note that their agreement is one signal rather than two.
The mistake most people make here
The common mistake is to treat all four indicators as four separate opinions on the same question. They are not. A moving average and MACD are both built from averages of past closes, so they often agree; RSI and Bollinger Bands use different arithmetic and can stay quiet while the others move. Before you act, ask what each line is made of: if two lines share the same input, their agreement is not extra evidence. Use one indicator for trend and one for volatility, then check the price itself.Check yourself
USD/INR moves 15 pips against you on two standard lots. What is the loss in ₹?
One pip on one standard lot is ₹10. Two lots is ₹20 per pip. 15 pips x ₹20 = ₹300.
A moving average and MACD both turn up. Does that mean two independent tools agree?
No. Both are built from averages of past prices, so they share the same input. Their agreement is one signal, not two.
Questions that come up next
Why do a moving average and MACD often move together?
Both are built from averages of past closing prices. A moving average is one running average of closes. MACD subtracts a slower average from a faster one, then averages that result again. Because they use the same input, they react to the same price changes at roughly the same time. Their agreement is one fact about price, not two separate opinions.
Can RSI go above 100 or below 0?
No. RSI is scaled to sit between 0 and 100. A reading near 70 means recent gains have outweighed recent losses by a wide margin. A reading near 30 means the opposite. The number describes the recent balance of gains and losses, not a limit on how far price can travel.
What does the Bollinger Band width tell me?
The width shows how far recent closes sit from their average. When price moves quietly, the bands narrow. When price swings more, the bands widen. That width is a picture of recent volatility, not a direction. A narrow band does not mean a big move is coming.
If two indicators agree, is that stronger evidence?
Only if they use different inputs. A moving average and MACD share the same closes, so their agreement is one signal. RSI uses gains and losses, and Bollinger Bands use standard deviation, so those two can stay quiet while the others move. Check what each line is made of before treating agreement as extra proof.
How does a 20 pip move on USD/INR translate to rupees?
On one standard lot, one pip is ₹10. So a 20 pip move is 20 times ₹10, which is ₹200. On two standard lots, one pip is ₹20, so the same 20 pip move is ₹400. Your broker may round the pip value or quote a slightly different rate, so the actual figure can vary.
The words used on this page
- moving average
- A line that adds the closing prices of a chosen number of periods and divides by that number. Each new period drops the oldest close and adds the newest one. It smooths price into a single running average.
- MACD
- A line made by subtracting a slower moving average from a faster one, usually 26 period from 12 period. A third average, often 9 period, is taken of that line to give a signal line. Every number in MACD comes from averages of past closes.
- RSI
- A bounded line between 0 and 100 that compares the average size of recent gains with the average size of recent losses. A reading near 70 means gains have recently outweighed losses by a wide margin. It describes the recent balance, not a ceiling on price.
- Bollinger Bands
- Three lines: a moving average in the middle, and an upper and lower band placed a chosen number of standard deviations away. The distance between the bands shows how far recent closes sit from their average. Wider bands mean more recent volatility.
- standard deviation
- A number that measures how spread out a set of values is from its average. In Bollinger Bands, it sets how far the outer bands sit from the middle line. A larger standard deviation makes wider bands.
- pip
- A small unit of price movement in a currency pair. On USD/INR, one pip is the fourth decimal place. On one standard lot, one pip is ₹10, but your broker may round that figure.
What to take away
- A moving average and MACD are both built from averages of past closes, so their agreement is one signal, not two.
- RSI uses gains and losses and is bounded between 0 and 100, so it can stay near 70 while price keeps rising.
- Bollinger Bands add a volatility input: the width of the bands shows how far recent closes sit from their average.
- Before you act, ask what each line is made of. Use one indicator for trend and one for volatility, then check the price itself.