Anyone who has read my work knows that I prefer using MACD and RSI together to generate entry signals. Reason being is that they are both very popular indicators, but also highly effective.
Let’s take a look at this Chart of the Euro/USD
So you can see how both indicators gave us great entry opportunities throughout the year.
Now, before we go any further let’s establish Trade Forex what exactly RSI is telling us here. The RSI oscillator fluctuates between 0-100 with high numbers indicating overbought conditions (due to bullish sentiment) and low numbers indicating oversold conditions (due to bearish sentiment). So in effect, when the reading hits above 70 then it tells us that bullish momentum has started to pick up and vice versa.
In the case of the Euro/USD you can see when it dipped Marubozu Candlestick Pattern below 30 it was showing us that bearish momentum was picking up at a rapid pace which in turn suggested we could expect downwards movement in price.
How to read the trend-Spotting indicators such as MACD, RSI
Another way to read RSI is when it starts making higher lows or lower highs, whether that be above 60 or below 40. In this situation it tells us that the trend is probably going to continue until we reach overbought/oversold territory.
The secret behind using RSI together with MACD is that they tell us many of the same things but from different perspectives.
MACD measures upside versus downside momentum whereas RSI shows us where buying versus selling pressure is at.
Putting it all together, we can start to see a trend emerging in the market and then take appropriate action.
In the chart above, you can see that when MACD crossed below the signal line (blue) and RSI dipped below 30, it was a clear sign to start selling. Conversely, when MACD crossed back above the signal line and RSI rose above 50, it was a good time to buy.
One thing you will want to keep in mind is that trading against the trend is usually a bad idea so only trade in the direction of the trend.
MACD and RSI Stock Indicators
So there you have it! By using MACD and RSI together you can spot buying/selling opportunities with much greater accuracy. Happy trading!
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