Once you can read a plain price chart, identify support and resistance, and recognize a trend with your own eyes, indicators stop being magic black boxes and start being what they actually are: math performed on the same price data you are already looking at, designed to make certain patterns easier to see at a glance. This article covers the two most widely used indicators in all of technical analysis, the moving average and the Relative Strength Index, known as RSI, and shows how they combine, using a real, calculated example, not a hypothetical one.

Moving averages: smoothing out the noise

A simple moving average takes the closing price of the last N periods and averages them, then plots that single number, recalculated fresh for every new period as old data drops off and new data is added. A 20-day simple moving average on a daily chart, for example, is the average closing price of the most recent 20 trading days, updated daily. The effect is a smoothed line that filters out short-term noise and makes the underlying direction of the market easier to see than the jagged candlesticks alone would allow.

Shorter moving averages, such as a 10-day average, react quickly to recent price changes but stay noisy. Longer moving averages, such as a 50-day or 200-day average, are far smoother but lag well behind sharp turns. Most traders do not pick one length and stop there; they use the moving average’s slope and its relationship to price as two separate, complementary signals.

RSI: measuring how stretched a move has become

The Relative Strength Index, developed by J. Welles Wilder, measures the speed and size of recent price changes on a scale from 0 to 100. It is calculated from the average size of up-moves versus down-moves over a chosen lookback period, almost always 14 periods by default, and converted into a single number through a formula that compares average gains to average losses. The practical reading is simpler than the formula: RSI readings above 70 are traditionally considered overbought, suggesting a rally may have moved further or faster than is sustainable in the near term, while readings below 30 are considered oversold, suggesting a decline may be overdone. RSI does not measure trend direction by itself; it measures momentum, the rate of change, which is a genuinely different piece of information.

Both indicators, calculated on real data, together

Rather than describing this abstractly, here is a 20-day simple moving average and a 14-day RSI, both calculated directly from the real AAPL closing prices this series has used throughout, from July 22 to September 30, 2025.

Data: TipRanks historical prices, AAPL daily closes, Jul 22 – Sep 30, 2025. 20-day SMA and 14-day RSI calculated from this data.

Several real, calculated details stand out here. The 20-day moving average only begins partway through the chart, because a 20-day average genuinely needs 20 days of prior closes before it can be calculated for the first time; this is a real constraint of the indicator, not a charting limitation. Through most of August, price trades above the rising moving average, consistent with the uptrend identified in the previous article, and the average itself slopes upward, confirming the same conclusion from a different angle. The RSI climbs above 70 in mid-August, specifically reaching roughly 76 around August 13 and 14, exactly the period when price was testing the $230 to $235 resistance zone covered earlier in this series, a real, calculated example of overbought conditions coinciding with resistance. RSI then cools back into the 50s through the September consolidation before climbing sharply again, exceeding 80 by the very end of the period as price broke out to new highs in late September.

How traders actually combine these two tools

Used together, a moving average answers “what is the prevailing direction” while RSI answers “how stretched is the current move within that direction.” A common, disciplined approach is to use the moving average as a filter, only considering long entries while price trades above a rising average, and only considering short entries while price trades below a falling average, then use RSI to time entries within that filter, looking for a pullback toward oversold territory in an uptrend rather than chasing a price that has already become overbought. On the real chart above, a trader using exactly this approach would have been looking for RSI dips toward the 50 to 55 zone during August and September, both of which preceded fresh pushes higher, rather than entering directly into the August 13 reading near 76.

Divergence: when price and RSI disagree

One of the more advanced but genuinely useful signals from RSI is divergence, which occurs when price makes a new high but RSI fails to make a correspondingly higher high, or price makes a new low but RSI fails to make a correspondingly lower low. This disagreement suggests the momentum behind the move is weakening even though price is still extending, a warning sign worth watching closely rather than acting on by itself. Divergence is a real, observable pattern, but it is also one of the easier signals to misread on noisy data, and it works best as one input alongside support, resistance, and trend rather than as a standalone trigger.

Practical guidelines for using these indicators

• Treat a moving average as a trend filter first; trade in the direction price sits relative to it before worrying about precise entries.
• Use RSI to gauge whether a move is stretched, not to predict reversals by itself. An asset can stay overbought for a long stretch during a genuinely strong trend.
• Look for RSI to pull back toward the middle of its range, roughly 40 to 55, during an established uptrend as a more favorable entry zone than chasing a fresh overbought reading.
• Remember that a moving average is calculated from past prices and will always lag a sharp, sudden turn; it describes where price has been more reliably than where it is going next.
• Treat RSI divergence as a caution flag worth combining with other evidence, such as a break of trend or a failure at resistance, rather than as a standalone signal to act on alone.

Simple versus exponential moving averages

The simple moving average described above weights every period in its lookback window equally; a 20-day simple average treats a closing price from 19 days ago exactly as heavily as yesterday’s close. An exponential moving average, often abbreviated EMA, instead applies progressively more weight to more recent prices, making it react somewhat faster to new information while still smoothing out a meaningful amount of short-term noise. Neither version is objectively superior; simple moving averages are generally considered to give a clearer read on longer-term, structural support and resistance because their slower reaction makes them less prone to whipsawing on short-term volatility, while exponential moving averages are often preferred by shorter-term traders specifically because that faster reaction time gets them into and out of moves with less lag. Many charting platforms default to simple moving averages, which is part of why this series, and most introductory material on the subject, leads with that version first.

Choosing a moving average length that matches your time horizon

There is no single universally correct moving average length, and the right choice depends heavily on how long you typically intend to hold a position. Very short averages, in the 5 to 10 day range, react quickly and suit traders looking to capture moves lasting a few days to a couple of weeks, but they also generate more false signals during choppy, range-bound conditions, precisely the kind of sideways market described in the previous article on trends. Medium-length averages, in the 20 to 50 day range, including the 20-day average used in the real AAPL example in this article, are a common middle ground for swing traders holding positions for several weeks. Long averages, the 100-day and especially the widely watched 200-day average, are generally used by traders and longer-term investors as a broad, structural gauge of whether an asset is in a primary bull or bear market over a period of many months to years, and are far less useful for the kind of shorter-term entry timing this series focuses on.

Where MACD fits alongside moving averages and RSI

A third indicator worth knowing about, even though it is not the focus of this article, is the Moving Average Convergence Divergence indicator, almost universally shortened to MACD, which is built directly from the relationship between two exponential moving averages of different lengths and is often displayed alongside a third, shorter average called the signal line. MACD is frequently used to confirm the kind of momentum shifts that RSI also attempts to capture, and many traders watch for agreement between the two before placing significant weight on a signal. The reason this series introduces moving averages and RSI as the core pairing rather than moving averages and MACD is mainly pedagogical: RSI’s bounded 0-to-100 scale and explicit overbought and oversold thresholds make it considerably more intuitive for a trader still building foundational skills, while MACD’s crossover-based signals, though genuinely useful, are easier to grasp once the underlying moving average concept covered here is already second nature.

Adjusting RSI thresholds for trending markets

The traditional 70 and 30 thresholds for overbought and oversold work reasonably well in range-bound markets but can be misleading during a strong, sustained trend, exactly the kind of trend covered in the previous article in this series. During a strong uptrend, RSI can climb above 70 repeatedly and remain elevated for extended stretches without the rally ending, since strong, persistent buying genuinely is an unusual, stretched condition by the indicator’s normal standards, yet remains entirely justified by real, ongoing demand. Many experienced traders adjust their expectations accordingly during a confirmed uptrend, treating readings in the 40 to 50 zone as the more meaningful oversold-equivalent pullback level worth watching for an entry, rather than waiting for a full retreat to the traditional 30 threshold that may never actually arrive during a genuinely strong move. The real AAPL data in this article illustrates this directly: RSI never dropped anywhere near 30 during the entire uptrend from August through September, yet the pullbacks toward the 50 to 55 zone still marked genuinely useful, lower-risk entry opportunities within that broader trend.

As with every tool in this series, neither a moving average nor RSI should ever be used in isolation. The real value of both indicators comes from combining them with the support, resistance, and trend concepts covered in earlier articles, and later with the chart patterns and multi-timeframe techniques still to come, building toward a single, coherent picture rather than reacting to any one signal on its own.

Mastering this pairing thoroughly, on real data you have studied closely rather than abstract examples, builds the foundation needed for the chart pattern and multi-timeframe techniques covered later in this series.

Key takeaways

• A moving average smooths price into a single trend-following line; shorter averages react faster but noisier, longer averages are smoother but slower.
• RSI measures momentum on a 0-100 scale, with readings above 70 traditionally considered overbought and below 30 considered oversold.
• On the real AAPL data, RSI reached roughly 76 in mid-August exactly as price tested resistance near $230 to $235, then cooled before climbing above 80 during the September breakout.
• A common, disciplined approach uses the moving average to define the tradeable direction and RSI to time entries within that direction, rather than using either indicator alone.
• RSI divergence, where price and momentum disagree, is a useful warning sign but works best combined with trend and support or resistance analysis rather than used in isolation.

Disclaimer

This article is for educational purposes only and does not constitute financial or investment advice. Moving averages and RSI are calculated from historical prices and do not predict future performance. The AAPL example used here is real historical data shown for illustration and is not a recommendation to buy or sell any security. Always do your own research and consider consulting a licensed financial advisor before trading or investing.