What you will learn
- RSI inputs and interpretation
- MACD components
- Stochastic normalization
- Extreme readings in persistent trends
RSI inputs and interpretation
RSI normalizes smoothed gains and losses into an oscillator. Its value describes recent directional movement under the chosen calculation; a high reading is not a contractual requirement for price to fall next.
MACD components
MACD compares moving averages and commonly includes a signal line and histogram. These components are transformations of related prices. A histogram change and an average crossing should not automatically be counted as independent evidence.
Stochastic normalization
A stochastic oscillator locates a close relative to a recent high-low range. A narrow range or an extreme close can produce a large normalized reading without a large absolute price change. Inspect the denominator and timeframe.
Extreme readings in persistent trends
Persistent trends can keep oscillators near extremes. The interpretation should depend on a tested rule and context rather than a universal overbought-equals-sell shortcut. Record failed reversals in any evaluation.
Worked example
A close is 19 within a lookback range from 10 to 20. Its unsmoothed range position is (19−10)/(20−10) × 100 = 90%. That number locates the close; it does not predict the next return.
Try it yourself
Calculate the range position of 11 in the same range and explain why neither result alone supplies a stop or position size.
Show the worked solution
The position is 10%. Both values are normalized descriptions. A stop requires an invalidation and execution assumption; size requires a budget, multiplier and costs. Those quantities cannot be inferred from the oscillator reading alone.
Apply this to your course project
Compare several indicators derived from the same prices and document redundant information.
Keep the calculation inputs, assumptions and decisions with your work. Practical exercises are self-reviewed; the scored knowledge checks assess the questions shown, not an independent certification of practical competence.