Trading Indicators: The Brutal Truth About RSI, MACD, and Everything Else

RSI below 30. Time to buy, right?

Wrong.

I can't count how many times I bought "oversold" conditions only to watch price keep dropping. And dropping. And dropping.

"But the indicator said..."

The indicator lied. Or more accurately, I misunderstood what it was telling me.

The Indicator Illusion

Here's the uncomfortable truth:

Every indicator is just a mathematical transformation of price. They don't predict anything. They describe what already happened.

RSI is overbought? That means price went up a lot recently. That's it. It doesn't mean price will go down.

MACD crossed? That means the short-term average crossed the long-term average. Price already moved. The cross is confirming old news.

Moving average support? It's just an average of past prices. Price doesn't "know" where the moving average is.

I spent years treating indicators like crystal balls. They're not. They're rearview mirrors.

What Indicators Actually Do

Okay, so if indicators don't predict, what are they good for?

1. Quantifying Conditions

"Price went up a lot" is vague. "RSI is 75" is specific.

Indicators give you numbers. Numbers you can use in rules. Rules you can automate.

2. Identifying Divergences

This is actually useful.

When price makes a new high but RSI makes a lower high, something's off. Momentum is weakening even as price pushes higher.

Divergences don't guarantee reversals. But they're a warning sign worth noting.

3. Filtering Noise

A moving average smooths out the chaos. It shows you the general direction without the tick-by-tick noise.

Useful for trend identification. Not useful for timing entries.

4. Confirming (Not Predicting)

Indicators can confirm what price action is already showing.

Price breaks resistance AND RSI breaks above 50? That's confirmation. The breakout has momentum behind it.

But notice: price action comes first. The indicator confirms.

The Indicators I Actually Use

After years of experimentation, here's what survived:

RSI (Relative Strength Index)

What I use it for: Divergences and extreme readings in context.

What I don't use it for: Buying oversold or selling overbought blindly.

RSI at 20 in a strong downtrend? Price can stay "oversold" for weeks. Don't catch that falling knife.

RSI divergence at a major support level? Now we're talking. That's confluence.

Volume

What I use it for: Confirming moves and identifying exhaustion.

What I don't use it for: Entry signals on its own.

Breakout on high volume? Probably real. Breakout on low volume? Probably fake.

Volume spike after extended move? Possible exhaustion. Smart money might be distributing.

Moving Averages

What I use it for: Trend direction and dynamic support/resistance.

What I don't use it for: Precise entry timing.

Price above 200 EMA? Probably an uptrend. Look for longs. Price pulling back to 20 EMA in an uptrend? Possible entry zone.

But I don't buy just because price touched the moving average. I need price action confirmation.

That's It

Seriously. RSI, volume, and a couple of moving averages. Everything else is noise.

I used to have 10 indicators on my chart. Now I have 3. My results improved.

The Indicator Trap

Let me tell you about the indicator trap.

You find an indicator. It works for a while. Then it stops working. So you add another indicator to filter out the bad signals.

Now you have two indicators. They work for a while. Then they stop working. So you add a third.

Before you know it, your chart is a mess of lines and colors, and you're more confused than when you started.

The problem isn't finding the right indicator. The problem is expecting indicators to do something they can't do.

How I Actually Use Indicators

Here's my real process:

Step 1: Price Action First

I look at the chart. What's the trend? Where are the key levels? What's the structure?

No indicators needed for this. Just candles.

Step 2: Indicator Confirmation

Once I have a potential setup based on price action, I check indicators for confirmation.

Price at support with bullish engulfing? Check RSI—is there divergence? Check volume—is it above average?

If indicators confirm, the setup is stronger. If they don't, I'm more cautious.

Step 3: Quantify for Automation

I translate my conditions into specific indicator values for dashpull.

"RSI divergence" becomes "RSI at current low is higher than RSI at previous low while price at current low is lower than previous low."

Specific. Measurable. Automatable.

The Best Indicator Setup

You want to know my actual indicator setup? Here it is:

• 20 EMA - Short-term trend
• 200 EMA - Long-term trend
• RSI 14 - Momentum and divergences
• Volume - Confirmation

That's it. Four things. Clean chart. Clear thinking.

I can see:

• Trend direction (EMAs)
• Momentum state (RSI)
• Conviction behind moves (Volume)

Everything else is decoration.

Indicators in Conditional Orders

Here's where indicators become powerful.

Instead of watching charts waiting for indicator signals, I define the conditions in dashpull and let the system watch.

Example setup:

Conditions:

• Price within 1% of 20 EMA
• Price above 200 EMA (uptrend confirmed)
• RSI between 40-50 (pullback, not oversold)
• Bullish candle forms

Action: Enter long with predefined stop and target.

The system monitors 24/7. When all conditions align, it executes. I don't need to stare at indicators all day.

Common Indicator Mistakes

Mistake 1: Indicator Worship

"RSI says buy, so I buy."

No. RSI doesn't "say" anything. It's a number. You decide what to do with that number, in context.

Mistake 2: Ignoring Context

RSI at 30 means different things in different contexts.

In a strong uptrend, RSI 30 is a pullback. Probably a buying opportunity. In a strong downtrend, RSI 30 is just the beginning. Price can go much lower.

Context matters more than the number.

Mistake 3: Too Many Indicators

If you need 5 indicators to agree before you trade, you'll never trade. And when you do, you'll be late.

Pick 2-3 indicators. Master them. Ignore the rest.

Mistake 4: Optimizing Parameters

"What if I use RSI 7 instead of RSI 14?"

Stop. You're curve fitting. The difference between RSI 7 and RSI 14 is minimal. You're optimizing noise.

Use default parameters. They work fine.

The Indicator-Free Challenge

Here's a challenge for you:

Trade for one week with no indicators. Just price and volume.

You'll be forced to actually look at the chart. To see the patterns. To understand the structure.

Most traders can't do this. They're dependent on indicators to tell them what to think.

Break that dependency. Learn to read price. Then add indicators back as confirmation tools, not decision makers.

The Bottom Line

Indicators are tools. Useful tools, when used correctly.

But they're not crystal balls. They don't predict the future. They describe the past in mathematical terms.

Use them for:

• Quantifying conditions
• Confirming price action
• Identifying divergences
• Automating your strategy

Don't use them for:

• Predicting price direction
• Replacing price action analysis
• Making decisions in isolation

dashpull lets me combine indicator conditions with price action conditions in my automated orders. The system watches for everything to align. When it does, it executes.

That's how indicators should be used. As part of a system. Not as the system itself.

Ready to build indicator-based conditional orders? Try dashpull →