Indicators: MA, RSI, MACD, Bollinger
What you learn in 3 minutesIndicators are arithmetic on past prices, drawn as a line. Four common ones are the moving average (MA), the relative strength index (RSI), the moving average convergence divergence (MACD) and Bollinger Bands. Each one costs you nothing extra to display, but each can only react to what its formula uses: closing prices, highs, lows or time. Before you add one to a chart, ask what it is actually measuring and what it must ignore.
One 20-pip move, four indicators, ₦0 extra to look
| Step | Amount | Note |
|---|---|---|
| Price move | 20 pips | EUR/USD moves from 1.0850 to 1.0870, a rise of 0.0020, which is 20 pips |
| Moving average (20-period) | turns up slowly | it averages the last 20 closes, so one 20-pip move changes the line by 20 ÷ 20 = 1 pip |
| RSI (14-period) | rises toward 70 | it measures the ratio of recent gains to losses; a steady rise pushes it higher, but it cannot see how large the candles were |
| MACD (12, 26, 9) | histogram grows | it subtracts a slow average from a fast average; the gap widens when short-term prices pull away from the longer trend |
| Bollinger Bands (20, 2) | price touches upper band | the bands sit two standard deviations around the 20-period average; a 20-pip move can push price to the edge without meaning a reversal |
| Cost to trade 0.10 lots | ₦1,085 per pip | one pip on one standard lot is 10 units of the quote currency; at 0.10 lots that is 1 unit, converted at the current naira rate of about ₦1,085 per unit |
Your broker may round the pip value, add a spread, commission or swap, and the naira conversion rate changes during the day. The ₦1,085 figure is an example at one rate, not a fixed cost.
The mistake people make here
The common mistake is to treat every indicator as a separate signal and buy when all four agree. They are built from the same past prices, so they often agree by construction and give no new information. Instead, pick one or two and write down what they measure. If a line is arithmetic on closing prices, it cannot react to a spike that happened between closes. Check the formula before you trust the line.Check yourself
EUR/USD rises 20 pips. A 20-period moving average uses the last 20 closes. By how many pips does the average move if the new close replaces an old one?
20 ÷ 20 = 1 pip. The average moves by 1 pip, not 20, because one new value is spread across 20 periods.
One pip on one standard lot of EUR/USD is 10 units of the quote currency. At 0.10 lots, what is one pip worth in units of the quote currency?
10 × 0.10 = 1 unit. One pip is worth 1 unit of the quote currency at 0.10 lots.
If the naira rate is ₦1,085 per unit of the quote currency, what is one pip worth in naira at 0.10 lots?
1 × 1,085 = ₦1,085. This is an example at one rate; the actual figure depends on the rate your broker uses.