The crypto market is a constantly changing environment experiencing various conditions. RSI and MACD are powerful indicators that can help traders gauge price strength and momentum, as well as oversold and overbought conditions.
In this guide, we will unveil advanced techniques for using RSI and MACD together to enhance the accuracy of signals. Let’s begin by overviewing each indicator.
Relative Strength Index (RSI): Measuring overbought and oversold conditions
RSI is an oscillator designed to calculate the relative strength and speed of price changes. One of its principal benefits is the capacity to provide information about oversold and overbought conditions. Using RSI, traders can identify divergences in the price action of an asset.
Learn more about RSI calculation here!
Moving average convergence divergence (RSI): Measuring Momentum
MACD is a momentum oscillator designed to follow market trends, detect reversals, and reveal potential trend momentum, producing sell-and-buy signals. It evaluates the relationship between two moving average periods, represented by the MACD line, working alongside the signal line to display bullish and bearish crossovers.
Learn more: Master RSI: Effective Methods to Spot Divergence and Convergence!
RSI And MACD Techniques
The core idea behind utilizing RSI and MACD together is achieving high-probabilistic setups. Traders can spot these setups in support and resistance areas, for example, to increase the reliance on the setup.
For the proper use of this combination, we can prioritize one of them at a time as the confirmation filter. Let’s study some cases.
RSI for Confirmation
Although RSI can detect overbought and oversold conditions, strong trends can still remain in its direction despite the condition. In this case, a MACD crossover can be a more proper signal for trend reversal.
For example, consider the following scenario:
- A trending market on BTC, where the price has been going up for a sustained period.
- Eventually, the price can slow down when the RSI reaches the overbought level (above 70).
- Now, the MACD line crosses below the signal line, indicating a bearish crossover.
In that example, after the RSI indicates an overbought level, MACD confirms the potential trend reversal with a crossover. This is an advanced way of using overbought and crossovers as signals.
Note that if this occurs over a resistance area, it will increase the reliance on the signal. Also, if a divergence emerges, which is the price making higher highs while an RSI line plunges, it increases the probability of the setup.
MACD for Confirmation using Time Frames: Exploring Divergences and Convergences
MACD can also be used as a confirmation filter. One advanced way of doing it is by integrating different time frames. This way, traders can find convergence, which means that they detect similar signals from indicators across multiple time frames at the same time.
For example:
- A bullish crossover in the MACD that emerges during a downtrend can strengthen an oversold suggestion of the RSI.
- A bullish crossover in the MACD on the daily chart at the same time that a bullish RSI signal appears on the hourly chart.
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Conclusion
Traders can combine the functionalities offered by every indicator to add weight to further analysis and forecasts, employing advanced techniques to confirm signals. MACD and RSI evaluate together the market momentum and price action of an asset, helping to detect convergence and divergence.
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