RSI + MACD Trading Strategy

Learn to use 2 excellent indicators together (with example) →

Hey there,

Nothing is predictable, not even the stock markets. Especially the stock markets. And since indicators are derived from prices themselves, not every indicator is fully reliable.

Could using 2 indicators instead of one give better signals?

Let’s find out…

2 Indicators Are Better Than 1

No indicator can give correct signals 100% of the time.

To improve the odds of getting the right trading signals, however, you can use multiple indicators for confirmation, preferably giving insight into 2 different aspects of the price movement.

Two of our favourite indicators are:

  • Moving Average Convergence Divergence (MACD) for identifying the trend and,

  • Relative Strength Index (RSI) for gauging the momentum.

Let’s combine the two for an effective trading strategy.

Implementing the Strategy (with example)

The idea of the strategy is to use the RSI and MACD indicators as a guide for momentum & trend. We then use price action for setting entries & exits.

Let’s understand this with an example ⬇️

Long Trade

The following conditions should be met:

> The MACD & signal line should be above the Zero Line and the color of the histogram should be green.

> The RSI should at least be above 50. RSI breaking out above 70 is preferable.

Once these conditions are met, look for a bullish candlestick/chart pattern, or a breakout supported with above-average volumes for an entry.

Short Trade

The following conditions should be met:

> The MACD & signal line should be below the Zero Line and the color of the histogram should be red.

> The RSI should be below 50. RSI breaking down below 30 is preferable.

Once these conditions are met, look for a bearish candlestick/chart pattern, or a breakdown supported with above-average volumes for an entry.

Learn various indicators, chart patterns, & effective strategies in Ms. Jyoti Budhia’s Technical Analysis Course.

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Example: Long Trade in IRFC

Below is the daily chart of IRFC. There were 2 instances where the above strategy could have played out (marked by the orange & green channels respectively).

You can see how using RSI+MACD along with price action (entering the stock when an open=low bullish candle was formed), as indicated by the green channel, has given a stronger up move ⬇️

While indicators can help us confirm the direction & momentum of a stock, price action should be the primary guide while taking trades.

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