The Use Of MACD With Fast RSI
The simultaneous use of several indicators of technical analysis makes it possible to improve the overall accuracy of signal filtering for trading, discarding false alarms and all kinds of noise in the market. The trading platform Binomo offers up to 6 popular indicators, which gives a lot of opportunities for technical analysis. In this article, we will consider the trading strategy for MACD signals, which are filtered by the Relative Strength Index with a fast period.
The indicators briefly explained
Being Gerald Appel’s invention, MACD enables you to determine the coefficient of divergence of two moving averages of different periods. For greater clarity, a bar chart can be added where the height of the individual elements is equal to the distance between the lines. With the help of the indicator, the current strength of the price trend is gauged. It also spots the optimal entry points to the market.
RSI (the Relative Strength Index) is a smooth moving average (SMMA) oscillator that enables you to differentiate the prevailing trend in the market. It shows the instability zones when the active trend stops and starts reversing. The key signal here is the intersection of the levels by which the oversold/ overbought zones are delineated. Additionally, the RSI line can form various patterns of technical analysis on the chart, but in this strategy, we won’t be guided by it.
Configure your trading terminal
On the chart of the Binomo platform (go to the site), you should apply two indicators. These are MACD with default settings and RSI. The parameters of the Relative Strength Index should be configured in the following way:
- The period – 7;
- OverBought – 70;
- OverSold – 30.
Reducing the period enables you to double the sensitivity of the Relative Strength Index. However, at the same time, the accuracy of its signals falls, but it’s compensated by the use of MACD. As a result, the strategy enables us to determine the optimal moments to buy options a traffic capacity of over 70%. If you adhere to the rules of money management, you will receive a stable profit.
How to trade the uptrend
The trader needs to recognize the emerging ascending trend in time to enter the market from the very beginning. You need to buy the UP option on the condition the following conditions of the strategy are met:
- RSI has crossed the level 30 (OverSold) from below and started demonstrating an uptrend;
- The fast (white) moving average MACD starts a gradual turn;
- The rising green candle is closing on the chart.
The index of relative strength should necessarily go out of the oversold zone. The longer it stays there, the better it is in terms of signal strength.
How to trade the downtrend
When trading the downtrend, the DOWN option should be purchased in a similar way, but with the opposite situation in the market. You should enter the market at the time of the upward trend reversal. Adhere to the following terms of the opening of the transaction:
- RSI has crossed the level 70 (OverBought) from above and started showing a downtrend;
- The fast (white) moving average MACD starts a gradual reversal of the uptrend;
- The red descending candle is closing on the chart.
The above picture is also noteworthy because immediately before the signal the market was in a state of divergence. It’s indicated by the situation with MACD when the moving averages showed a decline, and the price formation on the chart pointed to a leap. This fact is positive from the point of view of the percentage of the signal transmission. In most cases, the appearance of a divergence indicates that the price is moving in the wrong direction and it will soon turn in the direction indicated by the Moving Average.
The trading rules of the strategy
- The amount of one transaction shouldn’t exceed 1/20 of the deposit. Ideally, it should be less than 1%. These are the basic rules of money management.
- The duration of the option should be within 3-6 candlesticks.
- It’s highly recommended to trade on timeframes 1 and 5 minutes because at second intervals, the accuracy of the signals is lower.
Real trading with the strategy
To assess the overall effectiveness of this strategy, we have decided to conduct one test transaction on signals with the creation of screenshots at each stage. The testing was conducted on a real deposit. The currency – CRYPTO IDX, the interval – 15 seconds, the expiration – 1 minute, our investment – $10. All the necessary indicators with the required settings have been added to the chart.
All of the three criteria are met. First, the white moving average MACD has started to grow. Secondly, RSI has crossed the level of 30, and thirdly, the rising candle has closed on the chart. The UP option has been purchased for a period of 60 seconds.
After a minute, the transaction has been successfully closed with a profit. The price keeps rising. The oscillator is approaching the level of 70, the MACD histogram tends to overcome the 70 mark (the overbought zone).