“Relative strength indicator” or RSI is a calculation used to chart price movements by speed and price change.
“Exponential moving average” or EMA is a calculation used to chart the average of price movement over a specific period of time. “Moving average convergence divergence or MACD is a calculation of two calculated trends used to chart the movement of the differences of the two trends. Many stock traders and experts who track stocks say that what these three stock trading tools have in common as a triad of definitive information is an insightful ability to determine when the best reasonable point in time exists to either buy a particular stock or to sell a particular stock. It is understood or needs to be understood that no expectation like this is ever perfect, but apparently these trio gives the trader an above average result of being correct in its collective advice. Every expert in the stock trading business will expound loudly and at length for the need to have absolutely no emotion, no need to hold onto, no need to have to buy into any stock or asset. Doing so loses one’s objectivity and purpose for the job at hand. That job always is and must always be making money.
What happens with each of these tools and their respective charts is that each one will indicate by its respective calculations the point in time when a particular stock is at its weakest point and when a particular stock is at its peak point. Each of these tools covers a unique, separate area of the stock’s financial situation. Individually none of these three tools are able to tell a proper story about the stock. However, as the experts and believers say, together these three tools tell a very complete and robust story about the stock.
The RSI has a range of zero to 100. When the RSI for a stock is below 30 on the chart the stock is said to be in an “oversold” condition, reaching its lowest price value. When the RSI for the stock is above the value of 70 on the chart the stock is said to now be in an “overbought” condition, reaching its highest price point at this time in the current market conditions.
The EMA uses two EMA period trends. When the shorter trend is above the longer trend then the condition of the stock is strong and its price trends to increase. When the shorter trend is below the longer trend the stock’s price strength is said to weak and the stock’s price will likely decrease.
The MACD has a center line and when the trend line is above the stock’s price strength is increasing and when below the stock price is weaker and eroding.
To know when to buy stock the experts say that the RSI must be very low and oversold, the EMA must show weak stock price strength starting to move to strong, and the MACD also has to show weak price strength moving to strong. To sell the RSI is overbought, the EMA is beginning to decline and the MACD is beginning to decline.