MACD (Moving Average Convergence Divergence) and RSI (Relative Strength Index) are two popular technical indicators in Crypto trading. They stand out for their ability to provide clear signals. So what are the details of the MACD RSI combination strategy? How to apply this trading method effectively? Let’s explore the details of Crypto Trading below!
Explore 2 types of MACD RSI indicators in Crypto trading
Let’s briefly learn about the 2 types of MACD RSI indicators through the content below. In order to be able to analyze and apply the strategy of combining the 2 types of indicators effectively.
Overview of MACD indicator
In fact, MACD is a powerful momentum indicator. It helps investors identify and accurately assess market trends. Thanks to its versatility and effectiveness, MACD can be applied in many different trading strategies.
What is the concept of MACD?
MACD (Moving Average Convergence Divergence) is a technical indicator in Crypto analysis. It is used to determine the difference between two EMA (Exponential Moving Average) lines. By analyzing the interaction between these two EMA lines, MACD full form helps investors determine potential entry points on the price chart.
Although the structure of MACD is not too different from RSI. The difference lies in the oscillation level of MACD around 0 without upper or lower limits. This allows MACD to clearly show the strength of price trends.
MACD line characteristics
The advanced MACD indicator includes a Signal line, a Zero line, and a Histogram. Specifically:
- The Signal line and the MACD line are two moving averages, which show the price trend.
- The Histogram chart measures the degree of divergence and convergence between two averages. It helps investors assess the current rate of price change.
- The Zero line is considered the benchmark that determines the starting point of an uptrend or downtrend.
When the MACD line crosses the Signal line, investors can receive buy and sell signals. Specifically, when the MACD line crosses from below, it is a buy signal. Conversely, when it crosses from above, it is a sell signal.
Additionally, investors can identify divergence signals when the MACD line and the market price move in opposite directions. It shows that the current trend is weakening and is likely to reverse in the future.
See more: Know MACD for perfect crypto transactions
Overview of RSI indicator
As a powerful momentum indicator with the ability to provide many accurate signals, RSI can be applied by investors in many different ways.
What is RSI?
RSI (Relative Strength Index) is an indicator that measures the strength of a price trend. It assesses the level of price volatility over a specific period of time. The RSI provides overbought and oversold signals. To help traders determine the appropriate time to enter an order.
The RSI index fluctuates between 0 and 100:
- When the RSI moves above 70, the market is overbought. There is a possibility that the price will fall sharply in the near future.
- When the RSI moves below 30, the market is oversold. There is a possibility that the price will increase sharply in the future.
Characteristics of RSI indicator in technical analysis
- Volatility: The RSI indicator fluctuates between 0 and 100. It reflects the overbought or oversold level of the market.
- Structure: RSI has a simple structure and usually uses a default time frame of 14 periods. However, it can be flexibly adjusted according to the needs of investors.
- Signals: RSI provides signals that help determine whether the market is overbought or oversold. When RSI gives an overbought signal, the market may face a lot of volatility. Conversely, when it gives an oversold signal, be wary of the possibility of a price reversal.
- Identifying market trends: When the RSI falls from above 50 to below, it can signal a price decline. Conversely, when the RSI rises from below 50 to above. It is a sign that an uptrend is about to begin.
Effective MACD RSI Combination Trading Strategy
Here are some popular MACD RSI combination strategies in Crypto:
Apply MACD RSI combination strategy for sell position
Below are the steps to apply the MACD RSI combination strategy to enter a Sell order on the EUR/USD chart H4 time frame:
- Determine Price Trend: Look at prices approaching supply and demand zones on larger time frames to determine the current trend.
- Divergence Signal: MACD signal shows negative divergence with price. Also reinforced by negative divergence from the RSI indicator.
- Wait for a breakout signal: Wait for a breakout signal to appear and break the trendline. Check for a successful breakout with narrow-range candles and low volume. If the price fails to return above the trendline, it is time to enter a sell order.
- Set Stop Loss and Take Profit: After determining a suitable sell entry point, set Stop Loss just above the nearest peak. Set profit targets at previous support zones, at least 2R ratio.
Use EMA 50-100 crossover to determine the trend and enter orders:
- Determine the market trend: Use the intersection of EMA 50 and EMA 100. If EMA 50 crosses up and is above EMA 100, confirm the market’s uptrend.
- Reversal signal: When the MACD and RSI signals appear, if the EMA 50 suddenly crosses below the EMA 100. This is a sign that the market trend has changed. Enter a Sell order when the price returns to near the EMA lines or when the MACD gives a sell signal.
- Choose Take Profit Level: Set Take Profit based on the intersection of the two EMA 50-100 lines.
Apply MACD RSI combination strategy for buy position
The execution of the buying strategy is similar to the selling strategy, with the elements reversed. Specifically:
- Determine Price Trend: Look at the price trend approaching the supply and demand zone on the larger time frame to determine the current trend of the market.
- Divergence Signal: Identify the MACD signal showing positive divergence with price. Combined with positive divergence from the RSI indicator.
- Wait for a breakout signal: Wait for a breakout signal from the trendline. Test the breakout with a hammer candlestick that appears when the price pulls back to the trendline. If the breakout is successful, this is a buy signal.
- Set Stop Loss and Take Profit: Set Stop Loss just below the bottom of the hammer candle. Set Take Profit at the times when MACD gives a sell signal.
By applying this strategy, investors can take advantage of signals from MACD RSI to make more accurate and effective trading decisions.
See more: Open an Bybit account – explore the crypto exchange
The Relationship Between RSI and MACD
Both the MACD RSI indicators are momentum indicators related to EMA moving averages. Specifically:
- MACD: Calculated based on EMA lines. The formula for calculating MACD is: MACD = EMA 12 – EMA 26 (EMA on period 12 and period 26). The signal from MACD is also confirmed by the Signal line, which is the EMA 9 moving average.
- RSI: Calculated similarly to the EMA, but based on the average increase and decrease in market prices over a given period (usually 14 days). The EMA represents the average price of the market over a given period. Both tools work based on price trends.
Because of this relationship, many investors combine the MACD RSI to get a more detailed view of the market. However, because the MACD RSI measures different factors, they can sometimes give conflicting signals.
A typical example of a MACD RSI combination
For example, if the RSI indicator is above 70 for an extended period of time, it is a sign that the market is overbought. Meanwhile, the MACD indicator continuously crosses and moves above the Signal line, indicating that the market still has upside potential. These are two opposing signals. In such cases, investors should limit trading to avoid unnecessary risks.
Conclude
Above is the most detailed guide on how to combine MACD RSI in Crypto trading. Similar to other combination strategies, using multiple indicators at the same time can bring many trading advantages to investors. However, making the most of the signals requires knowledge and experience. Don’t forget to continue following Crypto Trading to regularly update Crypto market information!
Frequently Asked Questions
Why combine MACD RSI?
When combined with the use of both MACD and RSI, investors can receive stronger trading signals and help minimize risk.
How to use MACD RSI for trading?
Traders often use a combination of signals from both indicators to determine entry and exit points. For example, a popular strategy is to wait until the RSI indicates an overbought or oversold market, then confirm the signal with the MACD for certainty.
What are some popular strategies when combining the use of MACD RSI?
There are different MACD RSI strategies such as: combining MACD cross above/below signals with RSI 30/70 levels, combining RSI divergence signals with MACD cross signals, and many more.
