Indicators: MA, RSI, MACD, Bollinger

A moving average adds up a set number of past closing prices and divides by that number. It uses only closes, so it cannot see a high or low that happened between them. If the price spiked at noon and closed back near where it opened, the moving average never knew. The longer the period, the more one new close is diluted, so a 50-period average moves less than a 10-period average for the same price change.

The relative strength index compares the size of recent gains to the size of recent losses over a set number of periods, usually 14. It uses closing prices only. It does not know how far the price travelled inside the period, only where it closed. That means a day with a wide range but a small close-to-close change barely moves the RSI. The index is bounded between 0 and 100 by its formula, so it can never go above or below those values.

The moving average convergence divergence subtracts a longer moving average from a shorter one, then draws a second line called the signal line, which is a moving average of that difference. It uses closing prices and two time periods. Because it is built from two moving averages, it lags both of them. A fast change in price shows up later in the MACD than in the short average alone. The histogram is just the gap between the two lines, so it adds no new price information.

Bollinger Bands take a moving average and add and subtract a multiple of the standard deviation of the same closing prices. Standard deviation measures how spread out the closes are. When closes are close together, the bands narrow. When they are far apart, the bands widen. The bands use closing prices, a period and a multiplier. They do not use volume, news or the order book. A band touch is not a signal by itself; it only says the close is far from the average relative to recent spread.

Each of the four is arithmetic on past prices. None of them can react to anything that did not enter its formula. If you know the formula, you know what the line can and cannot see. That is the only honest way to decide whether to put it on a chart.

All four indicators in this lesson are built from the same closing prices. The moving average uses closes, the RSI uses closes, the MACD uses moving averages of closes, and Bollinger Bands use a moving average of closes plus their spread. When the closes rise, all four tend to move in the same direction. Their agreement is not evidence; it is arithmetic. Adding a fifth indicator built from closes would not change that.

A common mistake is to wait until all four point the same way before acting. That moment often arrives after the move has already happened, because each indicator lags by its own period. The cost is not a fee. The cost is missed entries and late exits, which show up in the price you get. You cannot put a naira figure on attention, but you can see it in the difference between the price when the signal appeared and the price when you acted.

The practical choice is to keep one or two indicators and write down what each measures. If you keep the RSI, you are watching the ratio of recent gains to losses. If you keep Bollinger Bands, you are watching how far the close is from its recent average. Two lines that measure different things can add information. Four lines that measure the same thing add only clutter.

Displaying an indicator costs nothing at most brokers. That is not the same as free. Every extra line is another thing to interpret, and interpretation takes time. The naira cost of a late entry is real even when the chart tool is free. The discipline is to remove lines that repeat what you already have.

An indicator line is a summary of prices that have already printed. It does not contain a price that has not happened yet. When the RSI is at 70, it means recent closes were larger than earlier closes by a certain ratio. It does not mean the next close will be lower. When the MACD crosses its signal line, it means the short average moved above the long average at that close. It does not mean the move will continue.

The useful question is what would have to happen for the line to change. For a 20-period moving average, one new close replaces one old close. If the new close is higher than the old one it replaces, the average rises. The size of the rise depends on the gap between them divided by 20. For EUR/USD, a 20-pip rise in the new close against the old one moves the average by 1 pip. That arithmetic tells you the line is slow by design.

Bollinger Bands widen when the closes become more spread out. A widening band is not a direction. It is a statement about dispersion. The RSI can stay above 70 for many periods while the price keeps rising. That is not a malfunction; it is the formula working. The MACD can stay positive while the price falls, because it compares averages, not the current price alone.

The honest use of any indicator is to describe the past and to set a condition you can check. For example, you might note that the close is above its 20-period average. That is a fact about the chart. You might then decide what you will do if it closes below. The indicator does not decide for you. It only gives you a consistent way to describe where price has been.