The MACD & RSI trading strategy is a straightforward system based on these indicators with the goal of identifying trends and opening scalping positions according to a trend direction.
This strategy is in high demand among novice traders because the trader receives accurate signals together with a simple algorithm.
The main advantage of the MACD & RSI strategy is its versatility.
The construction of the template on the graph takes a few seconds.
The approach can be used for trading all types of stocks including even penny stocks.
To form the needed template on the graph, a trader will need to open two charts of the same stock, but with different time frames.
The first time frame should be daily (D), the second – hourly (H1).
A trader should apply the MACD indicator on the D time frame chart, not changing the settings except for the visual display.
RSI indicator should be applied to the H1 time frame chart.
At first, a trader should evaluate the trend direction on the hourly chart.
To do this, please open the hourly chart on which you previously plotted the MACD and study the behavior of the histogram.
If you observe its location above the level of 0.00, you can safely state the global ascending trend.
Thus, subsequent signals will only be considered for buying.
If the histogram of this indicator is observed under the signal mark of 0.00, the global trend is downward, and the trader should consider selling positions.
It is essential to understand that the trend assessment by MACD is the main feature of this strategy.
Following the trend on D time frame, you will trade purely long or short positions.
Only a change in trend will allow a trader to switch from long positions to short and vice versa.
Figure 1. Determination of a trend on D time frame
After you have clearly defined the D time frame trend, let’s move our attention to the H1 time frame.
Signals appear according to the RSI exit from overbought and oversold zones.
Thus, when there is an upward D trend, and RSI breaks the mark of 30 from the bottom to up, a trader should open extended position.
If the trend is downward on D time frame and RSI breaks the mark 70 from top to bottom, a trader should open short position.
The optimal places for placing Stop orders are the previous extremes.
However, you can also set Stop Loss at the edges of the signal candle, especially if it is large.
We recommend closing the position at the profit level not less than the potential loss of Stop order.
Figure 2. Example of a position opening and closing
Using the strategy of MACD & RSI, a trader should pay attention that the strategy is not entirely trendy in its sense.
The trend change on D time frame is seen a little later than on H1.
As a result, there may be false signals at the moment of a trend reversal on D time frame.