RSI, MACD, Bollinger, ATR, stochastic and ADX

What it is

Momentum and volatility indicators are transformations of price. They compress recent behaviour into a number or a line so it can be compared over time. Every one of them lags, and every one of them is derived from the same price you are already looking at.

That is why they sit at step eight of the reading order. They are secondary evidence — useful for context, never the opening line of an explanation.

How to spot it

• RSI — momentum relative to recent gains and losses, on a 0–100 scale.
• MACD — the relationship between two moving averages, with a signal line and a histogram, plus a zero line for regime.
• Bollinger Bands — a moving average with volatility-scaled bands; expansion and contraction describe volatility, not direction.
• ATR — average true range, a measure of typical range. It says how big moves are, never which way.
• Stochastic — where the close sits within the recent high-low range.
• ADX and DMI — trend strength, not trend direction. High ADX accompanies strong downtrends just as happily as strong uptrends.

Why people watch it

Divergence is the most useful idea in this group. Price making a new low while RSI makes a higher low says momentum behind the move is weakening; a new high with a lower RSI high says the same on the upside. It is a warning, not a trigger, and it can persist for a long time before anything happens — or resolve with no reversal at all.

Confirmation

GMR's editorial rule on RSI is deliberately narrow: emphasise it mainly when price is at or near a meaningful support or resistance area AND the reading is genuinely extreme — roughly 1–24 or 80–100 — and then read it alongside the rejection or breakout structure, the volume, and the higher timeframe.

Never state that RSI alone confirms a reversal. It does not, and a product that says so is training its readers badly.

Invalidation

An indicator read is invalidated by the structure it was supposed to support failing. If RSI is extreme at a level and price closes straight through the level, the level was the thing that mattered and the indicator was describing the move, not predicting its end.

Common mistakes

• Teaching or believing '70 means sell, 30 means buy'. Strong trends stay overbought or oversold for long stretches — that is what a strong trend looks like.
• Treating a band touch as automatically overbought. In a strong trend price 'walks the band'.
• Reading ADX as bullishness rather than as strength.
• Using ATR as a direction signal.
• Opening a chart explanation with an indicator, which inverts the entire reading order.