(oversold) Price is testing a support zone. 14-period RSI is below 30. Trading Rules Day Trading with the RSI Long Day Trade.Examples Day Trading with the RSIAnd like day trading, swing traders aim to profit from both positive and. Sell below any bearish price bar. (overbought) Price is testing a resistance zone. 14-period RSI is above 70.
That being said, there are specific trading scenarios in which the MACD can prove to be a better indicator.MultiCharts - Setting Up different exit strategies templates for different markets. This is largely driven by the fact that the RSI Indicator gives fewer false trading signals than MACD. ( Exit at 1:2 Target )But, is one of these momentum indicators known for delivering better results in trading than the other? Statistical studies have shown that the RSI Indicator tends to deliver a higher success rate in trading than the MACD Indicator. Period 7 OverBought 60 OverSold 40 and I trade on this way, RSI Intraday Buy Entry: Buy position when RSI touch 60 going upside from the down. In essence, both these indicators are designed to provide foresight into when the price of a security can be expected to increase or decrease at an exceeding pace.I’m not a lover of the default setting of the RSI indicator, so I setup RSI like this for day trading which gives me the best result for options trading also. ![]() MACD Is Better Suited For Short-Selling Securities MACD is More Versatile, Providing Reliable Trading Signals on All Time-Frames and in a Variety of Market Conditions MACD Provides Trading Signals with 80% Accuracy in Trending Markets The period of the two moving averages will depend on the time frame you are trading. At its core, this indicator is the graphical representation of the difference between 2 different exponential moving averages, plotted against a centerline.With standard indicator settings, the MACD shows the difference between the 12-period exponential moving average and the 26-period exponential moving average. RSI Pairs Better With Fundamental AnalysisMACD stands for Moving Average Convergence Divergence. RSI Gives More Reliable Trading Signals In Non-Trending Markets In a more volatile market, to get trading signals based on more recent trends, you should change the indicator settings to use shorter-term moving averages.Similar to MACD, the Relative Strength Index (RSI) is another momentum indicator. This arrangement suggests a downward momentum. Similarly, a negative MACD represents that the long term moving average is greater than the short term moving average. A positive MACD shows that the short term moving average is greater than the long term moving average. This arrangement suggests an upward momentum. The signal line in MACD is created using a 9-period exponential moving average (EMA) or the small-period EMA, in the case where standard indicator setting is not used. In fact, according to a paper published by the University of California, Berkeley, the majority of technical traders use MACD with standard indicator settings of 12-period and 26-period moving average.Momentum is the parameter being measured by the MACD Indicator. Hence, this indicator will give you an idea of current price momentum by comparing it with the short-term and long-term price momentum.There are few additional points worth noting on the insights provided by the MACD Indicator. Marshall jcm 2000 reviewsComparison: MACD (Moving Average Convergence Divergence) and RSI (Relative Strength Index)Even though both, MACD and RSI, are momentum indicators that measure the strength of a trend, there are some striking differences in how advanced traders use these indicators in their trading strategy.There are scenarios in which RSI (Relative Strength Index) has been found to deliver better trading results than MACD (Moving Average Convergence Divergence) and vice versa.In the following sections, I have summarized the findings of several statistical studies and research papers to identify scenarios in which each of these indicators has been found to have an edge over the other.Now, without further ado, let us dive straight into these trading scenarios. Similarly, if you are trading the hourly chart, the indicator will get plotted using data worth 14 hours.Additionally, similar to MACD, the analysis period for RSI can also be adjusted to a shorter-term period, when trading in a more volatile market. This will ensure that the signals generated by RSI are based on the most recent price trends, thereby reducing the number of false short-term signals that the indicator would otherwise generate in high volatility market environment. In my personal trading journey, I have found divergence to be a very reliable tool in identifying upcoming trend reversals.With standard indicator settings, the RSI is typically plotted using 14 trading periods worth of data. Similar to MACD, even for RSI the exact period for which the indicator would analyze data will depend on the time frame in which you are trading. If you are trading the daily chart, the indicator will get plotted using 14 days worth of data. A reading less than 30 on the RSI indicates that the asset you are trading might be oversold.It has also been suggested that a reversal could be on the way if the actual price action is diverging from the RSI signal. In Technical Analysis, this concept is called divergence. A reading greater than 70 on the RSI indicates that the asset you are trading is overbought. The MACD Indicators work well on all time frames, including the daily, weekly, and monthly time frames.Additionally, with MACD, the divergence of the two moving averages may be altered from 12 and 26 day period EMAs to a divergence that is more suitable for a specific security.As an example, for longer-term trade signals, if you can use longer moving averages in MACD settings it will smooth out the short to medium term volatility from indicator signals. MACD is More Versatile, Providing Reliable Trading Signals on All Time-Frames and in a Variety of Market ConditionsIn 2013, Ziba Habibilashkary, who at the time of writing this article is a Professor at the Universidad Politécnica de Madrid, published a research paper titled – “Technical analysis of Forex by MACD Indicator”.In this paper, she examined the usefulness of MACD in Forex Trading and found this indicator to have multiple applications due to its accuracy over both short and long term periods. However, in a choppy sideways movement, you are likely to get better trading results using RSI. On the other hand, this study identified a company as a small-cap if its market capitalization value was under $1 billion.Now, based on the findings of this research, if we were to make a deduction on the overall usability of MACD, we can conclude that this indicator is statistically NOT proven to work well in choppy markets that are characterized with a sideways movement.Hence, if you were trading in a trending market, you can have MACD as your indicator of choice. During the course of this study, researchers found that the MACD is more suitable for predicting trends of large-cap and small-cap stocks in comparison to the mid-cap stocks that generally have a less organized trend line.Statistically speaking, in this study, the MACD Indicator was able to accurately predict trend directions 80% of the time, as long as the stock was for a large-cap or small-cap company.From a classification standpoint, in this study, a company was categorized as a large-cap company if its market capitalization value was greater than $10 billion. Plus, in many asset classes, short selling is not an easy proposition for average traders.For example, in the Stock Market, short selling of shares involves four steps. In this study, the researchers go on to cite previous studies in American and Japanese markets that further support this claim.That being said, as a trader you must always remember that short-selling in itself comes with increased risk. In other words, in doing this, you are zooming out in order to get a better picture of when to buy and sell the securities.Similarly, for shorter-term trade signals when trading highly volatile assets, you may want to use smaller moving averages in MACD to generate signals that are based on most recent trends. This will ensure that you are making trading decisions based on the most recent market data and that your signals are less skewed by outliers in the longer time frame.MACD Is Better Suited For Short-Selling SecuritiesA 2014 study by Business Perspective examining the effectiveness of the RSI and MACD indicators in the Australian market suggests that the MACD indicator is better suited for short-selling, in comparison to RSI. This is because when your intention is to make a long-term trade on a volatile asset, you would want to “smooth out” the trading signals in order to reduce the chance of false signals.
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