The Moving Average convergence indicator and the Relative Strength Index are legendary indicators. They are in the top 5 of the most popular analytical tools. The MACD and RSI are included in the range on the Binomo trading platform. In this article, we will look at a strategy based on them. This system is suitable for beginners, but it is very effective nevertheless.
Overview of the indicators
Combining multiple indicators allows you to reciprocally compensate for the shortcomings of different technical analysis tools. The strategy we’re considering is based on the simultaneous filtering of signals by the RSI oscillator and the MACD trend indicator. Let’s consider each of them in more detail.
- The MACD is an indicator that shows the divergence coefficient of the Moving Average It consists of two curves and a histogram. It was developed a year after the RSI, in 1979. That is when most of the modern indicators were created. It was the beginning of the era of computerization of stock and currency exchanges.
- RSI is the most popular oscillator from Welles Wilder, who created a very large number of technical analysis tools. It was introduced in 1978. The relative strength index consists of one curved line, which is located in a separate window under the chart with a vertical division from 0 to 100.
Oscillators allow you to recognize whether the market is overbought or oversold. In comparison with trend indicators, they differ in their minimum signal lag, but not very high level of accuracy. The MACD allows you to recognize more stable trend movements, but the forecast accuracy is lower.
Preparing the trading terminal
The preliminary preparatory stage will take about a minute. It is recommended that you don’t only pay attention to the technical component of the strategy. To make it more convenient, you can add a color fill to the zones of the Relative Strength Index: overbought (above 50) – green, oversold (below 50) – red.
Step-by-step instructions for configuring the Binomo terminal:
- open the chart of an asset with good volatility and high profitability;
- activate candlestick chart mode and set a 15-second interval;
- add the MACD indicator, without changing the standard settings;
- add the RSI indicator, setting up the border of the two zones at the level of 50%.
The level of volatility can be assessed visually by looking at the chart. If there are multiple gaps or candles without bodies and/or shadows on the 15-second interval, that indicates a calm market. In this situation, it is best to choose a different trading asset.
Trading on the strategy signals
The key signal of the MACD is the moving average intersection point. This moment is reflected in the histogram in the form of a color change in the fill of the columns. That means traders can pay attention to any of the indicators, as they are completely identical.
How to trade on the indicator signals:
- trade on an increase — the beginning of MACD line growth after their intersection, the confirmation of the signal is growth of the RSI index with an intersection of the horizontal boundary;
- trade on a decrease — an intersection of the MACD curves with a subsequent decline, as well as a similar confirmation from the RSI (the line moves downward, crossing the border of 50).
After the signal is generated, we immediately open a trade in the desired direction, without wasting any time. If the time frame is set to 15 seconds, the optimal trading operation duration is 1 minute or 4 candles on the chart. When observing this proportion, you can scale the chart period and expiration time. For example, up to a ratio of 30 seconds and 2 minutes (time frame and trade duration), or 1 and 4-5 minutes.
Caution! This article is not intended to be investment advice. No strategy can guarantee 100% correct trading results. A successful trading result in the past is not a guarantee that it will be repeated in the future. Any information contained in this article is for informational purposes only.