Open any trading app and the first two indicators people reach for are usually RSI and MACD. They sit in panes under the price chart, wiggle constantly, and seem to promise an answer. They do not. But used properly, they are good at one job: showing you the momentum behind a move. This guide explains both in plain words, then spends just as long on when they fail, because that is the part most guides skip.
In short
- RSI (Relative Strength Index) measures how strong recent up-moves are compared with down-moves, on a 0 to 100 scale.
- MACD compares a fast and a slow moving average to show whether momentum is building or fading.
- Both are calculated from past prices, so both lag. They describe; they do not predict.
- In strong trends RSI can stay "overbought" for a long time; in sideways markets MACD gives many false crossovers.
- Use them to ask better questions about a chart, alongside trend and support/resistance, never as buy/sell buttons.
What RSI shows
RSI looks at a set number of recent candles, 14 by default, and compares the average size of the up-closes with the average size of the down-closes. The result is squeezed onto a scale from 0 to 100. If most recent movement has been upward and strong, RSI is high. If most has been downward, RSI is low. Around 50 means up and down moves have been roughly balanced.
The classic reading uses two lines: above 70 is called "overbought" and below 30 "oversold". Those words are misleading. Overbought does not mean "about to fall"; it means "has risen strongly and recently". A stock can be overbought and keep rising for weeks.
What MACD shows
MACD stands for Moving Average Convergence Divergence. In principle it is simple: take a fast moving average of price (12 periods by default) and subtract a slow one (26 periods). That difference is the MACD line. When the fast average pulls away above the slow one, momentum is rising and MACD climbs. Then take a 9-period average of the MACD line itself: that is the signal line. The bars, called the histogram, show the gap between the two.
The most common readings are a crossover (MACD line crossing above or below the signal line), whether MACD is above or below zero (which says whether the fast average is above or below the slow one), and whether the histogram bars are growing or shrinking (momentum building or fading). If moving averages are new to you, read SMA vs EMA and crossovers first; MACD is built from them.
Divergence: the most useful signal for beginners
A divergence happens when price and the indicator disagree. Say price makes a new high, but RSI makes a lower high than it did at the previous peak. Price went further, but with less force behind it. That is a bearish divergence. The opposite, price making a lower low while RSI makes a higher low, is a bullish divergence. Divergence does not mean the trend will reverse; it means the trend is getting tired. It is a reason to look more carefully at nearby support and resistance, not a reason to act on its own.
When RSI fails
- Strong trends. In a powerful uptrend RSI can sit above 70 for a long time. Selling every time it crosses 70 means selling a winner again and again. In a downtrend, "oversold" can get more oversold.
- Sudden news. RSI only knows past prices. A surprise announcement can move price far beyond anything RSI suggested.
- Very short timeframes. On 1-minute candles RSI swings between extremes constantly, so the 30 and 70 lines lose meaning.
- Thinly traded stocks. When few shares change hands, a couple of trades can make RSI jump around without any real change in demand.
When MACD fails
- Sideways markets. When price chops in a range, the fast and slow averages keep crossing. MACD then gives crossover after crossover, most of them useless. This is called a whipsaw.
- Lag. Because MACD is built from moving averages, its crossovers arrive after the move has started, sometimes after much of it is over.
- Comparing stocks. MACD values are in price units, so a MACD of 5 on a Rs 2,000 stock means something very different from 5 on a Rs 200 stock. Compare a stock with its own history, not with other stocks.
A simple way to use them together
- Decide the trend first from the price chart: higher highs and higher lows, lower highs and lower lows, or a range.
- Use MACD to ask whether momentum agrees with that trend: is it above zero in an uptrend, and are the histogram bars growing or shrinking?
- Use RSI to spot exhaustion and divergence near a support or resistance zone.
- If the three disagree, the honest answer is "unclear", and unclear is a perfectly good reason to do nothing.
On the StockYatra charts page you can add RSI and MACD from the indicators menu (each opens in its own pane under the price, with editable settings), or load the Beginner template. If you want a second opinion, Lumi AI can explain what the momentum readings on the current chart mean in plain English or Nepali. It never tells you to buy or sell. Look up any unfamiliar term in the glossary, and see our older piece on technical indicators for more history.
Key takeaways
- RSI measures the strength of recent moves on a 0 to 100 scale; MACD measures momentum from two moving averages.
- "Overbought" and "oversold" describe the past, not the future.
- Divergence is the most useful beginner signal: price and momentum disagreeing.
- RSI struggles in strong trends; MACD struggles in sideways markets. Both lag.
Education only, not investment advice. StockYatra is a learning app: prices on its practice market are simulated around each stock's real-world price level, coins are virtual, and nothing in this article is a recommendation to buy or sell any security. Every example uses made-up round numbers to explain an idea, not to describe a real stock.
Summary in Nepali (नेपालीमा सारांश)
RSI ले हालैका माथिका चालहरू तलका चालहरूभन्दा कति बलिया छन् भन्ने ० देखि १०० को स्केलमा देखाउँछ। MACD ले छिटो र ढिलो मुभिङ एभरेजको फरकबाट मोमेन्टम बढ्दैछ कि घट्दैछ भन्ने देखाउँछ। दुवै पुरानो मूल्यबाट बनेकाले ढिला हुन्छन्, भविष्य बताउँदैनन्। बलियो ट्रेन्डमा RSI लामो समय "ओभरबट" रहन सक्छ, र साइडवेज बजारमा MACD ले धेरै गलत क्रसओभर दिन्छ। यिनलाई किन्ने-बेच्ने बटन होइन, चार्टबारे राम्रो प्रश्न सोध्ने साधनको रूपमा प्रयोग गर्नुहोस्। यो शिक्षाका लागि मात्र हो, लगानी सल्लाह होइन।
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