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MACD or RSI
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Which Is Better MACD or RSI?

Mon Dec 27 2021 16:17
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The moving average convergence divergence (MACD) and relative strength index (RSI) are popular indicators in trading. Forex traders widely use them to measure the strength of trends. Read on to understand how they work and which one is better.

Introduction

In forex trading, traders can use several technical indicators to boost their trading results and scale profits. Most trading indicators help forex traders understand market trends and direction. 

Moving averages convergence divergence and relative strength index are some of the most popular indicators utilized by traders globally. Recently, many MACD vs RSI Reddit questions have been, especially from beginner forex traders.

Many traders wonder which of the two indicators is the best to use and how they should be used. 

This article is here to clarify your questions and help you understand how to use RSI and MACD for day trading or any other type of trading. Keep reading to gain more insight.

What Are the Basics of MACD?

The MACD or moving average convergence divergence indicator is mainly used to show the strength of price movements in the market. The indicator uses two exponential moving averages to measure the strength of prices. 

The two EMAs include; a 12-period EMA and 26-periods EMA. The moving average convergence divergence line is usually created by subtracting these two periods. That is the 26-period minus the 12-period EMA. This line allows traders to know when to buy or sell signals between the support and resistance level. 

 Some traders change these periods depending on their trading strategy, but the default one usually works perfectly for most traders. Another thing worth noticing about the MACD indicator is the signal line known as the 9-period exponential moving average. 

When this line is positive, the short-term MA is greater than the long-term MA. This should tell you that the market is on the upward momentum. On the other hand, the negative MACD means that the long-term MA is greater than the short-term MA.

This shows a downward momentum. Traders are usually advised to change the MACD settings if they are trading in a more volatile market.

Pros and Cons of MACD

Pros
  • It can be used as a momentum and trend indicator
  • Clearer and better buy and sell signal
  • It can be combined with other indicators like RSI
Cons
  • It does not indicate accurate analysis when it comes to trends
  • It can give false reversals

What Are the Basic of RSI?

The relative strength index is the other trading indicator widely used in forex trading. It is suitable for indicating overbought and oversold markets. The indicator calculates average price losses and gains over a certain period. The default time set of RSI is 14 periods.

Apart from that, it uses numbers that range from a scale of zero to 100. Values that go beyond the 70 levels are considered to be overbought. That is in relation to price levels. When values go below 30, the signal shows that the market is oversold

In short, when prices go above 50, it is interpreted as being bullish, and when they are below 50, that is bearish. 

The most important thing is for traders to differentiate RSI indicator buy and sell signals. This will help them know when it is the right time to enter or exit a position. 

Traders can also adjust periods when using the relative strength index indicator depending on the market's volatility.

Pros and Cons of RSI

Pros
  • It is easy and simple to read
  • It tracks the speed of market momentum
  • RSI can help you open and close positions
Cons
  • There are no consistent signals
  • Signals can show false starts
  • When the momentum is strong, RSI may not be very beneficial

Moving Average Convergence Divergence (MACD) Vs. Relative Strength Index (RSI)

The moving average convergence divergence and relative strength index are momentum indicators. Even though that is the case, they have some common differences. 

These differences allow them to work separately in various trading scenarios. This section will discuss the common differences these two indicators have;

Trading Signals and Time Frames

The MACD indicator is well known for providing accurate trends for both long and short-term periods. It is also applicable to all time frames, including monthly, weekly and daily. 

MACD offers you several signals as compared to using RSI. Typically, the relative strength index focuses on reversal signals and provides more accurate trading signals in non-trending markets.

Factor In Use and Calculation

Relative strength index indicator uses the highs and lows in the price fluctuations or periods to predict future market changes. It is also calculated using a series of numbers that range from 0 to 100. 

On the other hand, the moving average convergence divergence indicator uses two exponential moving averages and is calculated by subtracting the two MAs.

How to Use RSI MACD Combined Indicator

The MACD and RSI indicators are usually combined in some cases to make trading much more manageable and profitable. 

However, you must first understand how both indicators work to apply them in forex trading. Here are some of the ways you can use the RSI MACD combined indicator;

Confirming Price Momentum

MACD RSI strategy can provide more information about price momentum in the market. It is always crucial to check if both indicators have the same results. 

When both the MACD and RSI agree, it will give you more trading confidence.

Applying Risk Management

It is essential to apply risk management strategies to avoid losing your trades or blowing your account. If you have a position open, it is wise to check signals price trends with these indicators to determine future market changes.

If one indicator shows a shift in momentum, you can consider closing that position before you incur losses. Also, think about your trading strategy when using the RIS MACD combined indicator to avoid false signals. 

Develop an exemplary method of using both indicators and learn how to predict them before making a move.

Exiting a Trading Position

When it comes to some trading strategies, you have to be very precise about entering and exiting a trading position. The MACD and RSI indicators can significantly help you exit a trade correctly.

Other Indicators to Use with MACD and RSI

If you want to scale your trading results, you may consider combining indicators to get more accurate signals. Here are a few indicators you may combine with MACD RSI strategy;

Simple Moving Average (SMA)

This strategy can also help identify market trends and price fluctuations. Therefore it can be combined with MACD and RSI to give more precise data.

Stochastics

The MACD vs stochastics indicator can work effectively for many traders. This is because stochastics works by comparing the recent stock range based on the opening and closing prices in the market.

It helps provide assumptions about the market, which allows traders to know when markets will close. You can also try to understand more about the MACD vs RSI vs stochastic to understand how it is used in trading.

Which One Is Better; MACD or RSI?

The MACD and RSI indicators are powerful trading tools that can help you make consistent profits. The good news is that they can be combined to produce better results.

However, it is wise that you understand them in depth to know which one works best in what scenario.

The Moving average convergence divergence is suitable for measuring the strength of price fluctuation, while the RSI is suitable for identifying market trends. 

Both indicators work effectively as long as you know what you are doing. Hopefully, this article will help answer many other MACD vs RSI Reddit questions. 

Xosignals.com will also help you understand more about other helpful trading indicators.
TAGS:
Forex,
Forex trading,
CFD
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