RSI and MACD Strategy – Double Confirmation Momentum Strategy 

 December 19, 2015

By  Advanced Strategies

For traders who prefer to make use of a rather simple rule based trading strategy without the complexity, the RSI and MACD Strategy is very ideal. This particular Forex trading strategy makes it easy for even beginners to trade with and works regardless of the market trends. Because the MACD and the RSI oscillators are two widely available trading indicators, they can be used on any trading platform which is bound to have these two default trading oscillators.

RSI and MACD Strategy Set up

The MACD oscillator is to be applied to the charts with the default setting of 12, 26 9

The RSI oscillator is set to 7 with only the 50 level being used

The MACD and RSI trading strategy works on the premise that the RSI indicator is used to gauge the market momentum while the MACD oscillator’s histogram is used as a timing indicator. When the two indicators line up, long and short positions can be taken accordingly.

The first picture below shows the MACD and the RSI trading indicators applied to the charts.

RSI and MACD Strategy Set up

RSI and MACD Strategy – Chart Set up

RSI and MACD Strategy – Buy/Sell Signals and Trading Rules

Buy Signal:

  • Wait for RSI 7 to move above 50
  • When RSI 7 is above 50, wait for MACD histogram to cross the 0-line from below
  • Buy on the candle close with stops at the candle’s low
  • Continue to hold the position until you get a reversal signal

Sell Signal:

  • Wait for RSI 7 to move below 50
  • When the RSI 7 is below 50, wait for MACD histogram to cross the 0-line from above
  • Sell on the candle close with stops at the candle’s high
  • Continue to hold the position until you get a reversal signal

RSI and MACD Strategy – Trading Examples

RSI and MACD Strategy - Buy SetupRSI and MACD Strategy – Buy Setup

In the first chart above, we have a long signal that was triggered first by the RSI 7 which crossed above the 50 level. A few sessions later, the MACD histogram also turns above the 0-line where the long position is taken.

The stops are set to the candle’s low and the take profit level is kept open. After quite a while, the RSI 7 dips back below the 50 level followed by the MACD histogram which also crosses down the 0-line. This is where the long positions are exited.

RSI and MACD Strategy - Sell SetupRSI and MACD Strategy – Sell Setup

In the next chart above, we can see how a sell signal was triggered using the MACD and the RSI trading strategy. Here, after the RSI first turned below 50, the MACD followed suit few sessions later. On the trigger candle, short positions were entered with a relatively tight stop loss. Prices continued to fall steadily and eventually on the next buy signal, the trade was exited with a very favorable profit.

MACD and RSI Trading Strategy – High Probability But Never a Sure Bet

As you might notice, in the above two buy and sell signal examples using the MACD and the RSI trading strategy there were two failed subsequent signals. This is something which traders need to get accustomed to. Due to the fact that the trading strategy yields strong profits with relatively tight stop losses in comparison, traders should be able to re-enter a trade especially if a second signal with the same bias comes up. The relatively tight stops can often get hit, but however the profit potential remains far wide open, making the RSI and MACD Strategy a really simple forex trading strategy that is also easy to trade.

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