Traders may often use the MACD and relative strength index (RSI) indicator strategy. This allows them to use both the RSI and the SMA to their advantage. But what are they?

  • The RSI allows traders to measure how strong a trend is while being able to pinpoint different points of reversal along that trendline. This is mapped along a baseline of 14 periods over two different levels: an oversold and an overbought one. Where the levels are set depends entirely on the trader and their strategies. Some may choose conservative levels of 20 and 80.
  • The SMA calculates the average range of prices by the number of periods in that range, usually with closing prices. This indicator allows traders to assess whether they believe a trend will continue or reverse.

Combining these three strategies together allows traders to:

  • Project future price changes using the RSI
  • See how strong a trend is and where it’s headed using the MACD
  • Use the SMA as a lagging trend-following indicator

Similar Posts

Types of MACD Strategies

Byadmin

Histogram The MACD histogram can be a useful tool for some traders. While we’ve explained a little bit above about how to read it, here’s how it works. It plots out the difference between the fast MACD line and the signal line. Traders can use the MACD histogram as a momentum indicator to jump ahead of changes in market…

An Overview

Byadmin

The concept behind the MACD is straightforward. It calculates the difference between a security’s 26-day and 12-day exponential moving averages (EMA). Each moving average uses the closing price of its period (26- and 12-day) to calculate its moving average value. On the MACD chart, a nine-period EMA of the MACD itself is also plotted. This line is called…

MACD Histogram

Byadmin

The MACD histogram is a visual representation of the difference between the MACD and its nine-day EMA—not highs and lows. The histogram is positive when the MACD is above its nine-day EMA and negative when the MACD is below its nine-day EMA. The point on the histogram where momentum is zero is the zero line. If prices…

Trading Divergence

Byadmin

Divergence refers to a situation where factors move away from or are independent of others. With the MACD, it is a situation where price action and momentum are not acting together. For instance, divergence can indicate a period where the price makes successively lower highs, but the MACD histogram shows a succession of higher lows. In…