RSI is among the effective trading indicators that experienced & newbie traders use. Why is the Relative Strength Index so popular? Well, its simplicity of design could make it easy to familiarize yourself with its application.
Another impressive thing about RSI is it supports various trading approaches, and investors can use it with other indicators. This article checks how traders can combine the RSI with SMA (Simple Moving Average) and the Moving Average Convergence (MACD) to analyze short and longer timeframes.
Relative Strength Index (RSI)
Traders can use the Relative Strength Index to gauge trend strength and find possible reversal points. It comprises two levels (overbought & oversold) and a 14-period baseline. Meanwhile, traders can see the levels at 30 & 70 or 20 & 80, depending on their approach.
Setting it at 20 & 80 is more conservative as it makes the RSI less delicate to price movements and may present more substantial indications, depending on user preference.
The RSI indicator presents a Buy signal when the baseline hits or surpasses the oversold mark and starts to move up. Meanwhile, a Sell signal showcases after the baseline reverses downward after reaching the overbought mark.
RSI + MACD + SMA
The trio is a combination of two lagging and a leading indicator. The Relative Strength Index is a leading indicator, predicting potential future price fluctuations. Meanwhile, Simple Moving Average (SMA) is a trend-following and lagging indicator.
RSI indicates potential reversal points, whereas the SMA confirms the signal. Meanwhile, the MACD displays trend strength and direction. That approach makes MACD confirm signals of the RSI and MACD. So, how can you analyze and use the indicators together?
Let us take an example. An upward move by the RSI beyond 50 while the candle chart crosses the Simple Moving Average line from beneath to beyond and MACD lines crossing reveals a buying signal.
A Sell signal would emerge if the candles moved under the Simple Moving Average line, RSI’s baseline headed into the oversold territory, and the MACD showed red bacs with a downward line cross.
Setup & Configuration
You can locate these indicators on the platform’s menu and use them. Also, you can utilize ‘search’ to find the MACD and RSI on the Momentum page and the MAs (Moving Averages) in the ‘Popular’ section. Meanwhile, these indicators are in default, but traders can customize them to fit their needs and preference.
For example, traders might change RSI’s oversold and overbought levels, SMA periods, and MACD periods. Nevertheless, there’s no issue with applying them at their defaults.
The discussed indicators supplement each other. Meanwhile, traders can use them together to determine reversal points and trend strength. Nevertheless, no strategy or indicator would ensure 100% success. Traders should use risk management as trading remains risky. You can use the tools when interacting with various markets, including crypto, Forex, and stocks.