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Lesson 26 of 29 · 5 min

Volume, MACD and RSI: the momentum gauges

Three more dials traders watch, and the 100-point checklist that combines them.

Volume: how many shares changed hands

Volume shows how much trading is behind a move. Traders compare today's volume with its 5-day average (the volume ratio). A price rise on heavy volume suggests many buyers agree; a quiet, low-volume dip in an uptrend is read as a calm pause. A drop on heavy volume is the warning sign.

MACD: are the averages speeding up?

MACD compares a fast average (12 days) with a slow one (26 days), using exponential averages that weight recent days more. The gap between them is the MACD line. When it crosses above its own 9-day average (the signal line), momentum is turning up; crossing below, it is fading. Above zero means the short-term trend is above the longer one.

RSI: has it risen too fast?

The Relative Strength Index scores recent gains against recent losses from 0 to 100. Above 70 is called overbought (risen fast, may cool off); below 30 is oversold (fallen fast, may bounce). Strong trends can stay 'overbought' for a long time, so it's a description, not a signal on its own.

Putting it together: the 100-point checklist

TrendBot uses the open-source tool's checklist: trend 30 points, not chasing 20, volume 15, MACD 15, support 10 and RSI 10. A total of 80+ is labelled 'strong buy', 60 to 79 'buy', 40 to 59 'watch', below 40 'reduce' or 'sell'.

It's careful and transparent, but notice what's missing: no earnings, no news, no valuation. It only reads the price chart.

Example: One stock through the checklist (illustrative)

Uptrend with the averages spreading apart: 30/30. Price 1% below its 5-day average: 20/20. Quiet volume on a down day (0.6× normal): 15/15. Holding its 10-day average: 5/10. MACD positive: 8/15. RSI 63: 8/10.

Total 86/100, 'strong buy' by the checklist. Whether the stock actually rises next is a different question.

Key terms

Volume ratio
Today's trading volume divided by its recent average.
MACD
Moving Average Convergence Divergence: the gap between a 12-day and a 26-day average, compared with its own 9-day average.
RSI
Relative Strength Index, 0 to 100; above 70 'overbought', below 30 'oversold'.
Overbought / oversold
Labels for prices that have risen or fallen unusually fast.
Remember

Volume, MACD and RSI describe how strong a move is; combining them into a score is tidy, but it's still only the chart.

Take the quiz (+$500 play money) → Next: Classic chart strategies →

Go deeper

All lessons

  1. Saving vs investing
  2. Compound growth: money that grows on itself
  3. Inflation: why cash slowly shrinks
  4. Emergency fund first, and where to keep it
  5. Risk and return: two sides of one coin
  6. What is a share?
  7. How buying and selling actually works
  8. Indexes: taking the market's temperature
  9. Why stock prices move
  10. Bull markets, bear markets and volatility
  11. Index funds and ETFs: buying the whole basket
  12. Fees: the small number that eats big money
  13. Bonds: lending your money
  14. Diversification and asset allocation
  15. Dividends: getting paid to own
  16. Revenue, profit and margins
  17. EPS, P/E and market cap
  18. Earnings reports: beats, misses and 'adjusted' numbers
  19. The balance sheet in plain English
  20. Steady wins: dollar-cost averaging and time in the market
  21. Your brain on money: common traps
  22. Spotting hype and scams
  23. Account types and taxes: the basics
  24. Using the daily news without overreacting
  25. Moving averages: reading a trend
  26. Volume, MACD and RSI: the momentum gauges
  27. Classic chart strategies
  28. Beyond the chart: factors and news
  29. Why most strategies fail (and what TrendBot teaches)

For learning only, not personal financial advice.

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Try “inflation”, “P/E ratio” or “Nvidia”.

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