When you first discover technical analysis, the list of available indicators is dizzying: there are hundreds of them. The good news is that you don’t need to know them all. Three indicators are enough to build a solid foundation: the RSI, the MACD and moving averages. They’re the most widely used in the world, and for good reason: each answers a simple and complementary question about the state of the market. Properly understood, this trio already gives you a clear reading of a chart.
In this guide, we explain what each of these three indicators does, how to read them, and how to combine them without drowning.
What is a technical indicator?
A technical indicator is a mathematical calculation applied to an asset’s price (and sometimes volume), displayed on the chart as a curve or an oscillator. Its purpose is to reveal information that isn’t obvious to the naked eye: the strength of a trend, a market excess, a shift in momentum.
An essential point to understand from the start: an indicator doesn’t predict the future. It translates and shapes information already present in the price. It’s a decision-support tool, not a crystal ball. And above all, no indicator is reliable on its own: it’s by cross-checking them, and placing them in the market’s context, that they take on their full value.
Moving averages: reading the trend
The moving average is arguably the most fundamental indicator. It calculates the average price of an asset over a given period and displays it as a curve that follows the price while smoothing it. By erasing short-term fluctuations, it reveals the underlying trend.
How to read it
The basic principle is simple. When the price is above its moving average, the trend is rather bullish. When it’s below, it’s rather bearish. The orientation of the curve itself also matters: a rising moving average confirms bullish momentum, a falling one bearish momentum.
People often distinguish short averages (for example over 20 periods), reactive but sensitive to noise, from long averages (for example over 200 periods), slower but which give the underlying trend. The crossing of a short average above or below a long average is a classic signal of a trend change.
What it’s for
Moving averages serve to identify the general direction of the market and to spot dynamic zones of support or resistance, around which the price tends to react. It’s the ideal indicator to answer the question: which way is the market going?
The RSI: measuring excesses
The RSI (Relative Strength Index) is an oscillator that measures the speed and magnitude of price movements. It appears as a curve moving between 0 and 100, displayed below the price chart.
How to read it
The RSI answers one question: has the market gone too far, too fast? Traditionally, an RSI above 70 signals an overbought zone (the price has risen a lot, a slowdown or correction becomes possible), and an RSI below 30 signals an oversold zone (the price has fallen a lot, a rebound becomes possible).
Beware of a classic mistake: an RSI in overbought territory doesn’t mean you should sell immediately. In a strong trend, the RSI can stay in the overbought zone for a very long time. These thresholds are zones of vigilance, not automatic buy or sell orders.
Divergence, the most useful signal
The most powerful use of the RSI is spotting divergences. A divergence occurs when the price and the RSI move in opposite directions: for example, the price makes a new high, but the RSI makes a lower high than the previous one. This reflects a weakening of momentum, often signaling a reversal. It’s a signal that experienced traders watch closely.
The MACD: capturing momentum
The MACD (Moving Average Convergence Divergence) is a momentum indicator based on moving averages. It measures the relationship between two moving averages to reveal changes in market momentum. It consists of two curves (the MACD line and its signal line) and a histogram.
How to read it
The most classic MACD signal is the crossover. When the MACD line moves above its signal line, it’s a bullish momentum signal. When it moves below, it’s a bearish momentum signal. The histogram, for its part, visualizes the gap between the two lines: the larger it is, the stronger the momentum; when it shrinks, momentum is weakening.
Like the RSI, the MACD can also reveal divergences with the price, which signal a weakening of the ongoing trend.
What it’s for
The MACD serves to confirm the strength of a trend and to spot changes in momentum. It answers the question: is the current trend accelerating or running out of steam?
Using all three together: the key
Here’s the most important point of this article. None of these indicators is reliable used alone. Their real strength appears when you combine them, because they answer different and complementary questions.
Imagine a cross-reading: the moving averages tell you the underlying trend is bullish (the price is above its long average), the MACD confirms momentum is accelerating (bullish crossover), and the RSI indicates there’s still room before overheating (it’s not yet overbought). When these three readings point in the same direction, the probability of a good trade rises significantly. Conversely, when they contradict each other, caution is warranted.
It’s this logic of confluence, several signals converging, that separates serious traders from those who blindly follow a single indicator.
Don’t fall into the overload trap
When discovering indicators, many beginners make the opposite mistake: they stack ten indicators on their chart, until it becomes unreadable and they receive contradictory signals constantly. This is what’s called analysis paralysis.
Three to four well-understood and complementary indicators are better than ten poorly mastered ones that repeat or contradict each other. The RSI, the MACD and moving averages already cover the essentials: trend, momentum and excesses. Master this trio first before considering adding others.
How SumoAnalysis leverages these indicators
Manually analyzing the RSI, the MACD and moving averages across several cryptos and several timeframes, in real time, represents a considerable amount of work. This is exactly what SumoAnalysis automates. The AI-powered crypto technical analysis integrates these indicators and many others into its engines, cross-checking them automatically to evaluate the quality of each setup.
Rather than relying on a single indicator, SumoAnalysis applies the logic of confluence at scale: a crypto signal is only issued when several factors converge.