MACD + RSI Trading Strategy
Indicators Used
1. MACD (12, 26, 9)
o MACD Line = EMA(12) – EMA(26)
o Signal Line = EMA(9) of MACD
o Histogram = MACD – Signal
2. RSI (14)
o Standard 14-period RSI.
o Levels: 30 (oversold), 70 (overbought).
Strategy Rules
Entry (Buy Signal)
1. MACD Bullish Crossover: MACD Line crosses above Signal Line.
2. RSI Confirmation: RSI is above 50 but below 70 (indicating upward momentum, not yet
overbought).
3. Optional: Check price is above 200 EMA (for trend filter).
Example: MACD crossover occurs while RSI is 55 → bullish confirmation.
Exit (Sell Signal / Take Profit)
• Exit long when MACD Line crosses below Signal Line, OR
• RSI enters overbought zone (≥70) and starts to turn down.
• You may also set a fixed target/stop loss ratio (e.g., 1:2 Risk-Reward).
Short Entry (Sell Signal)
1. MACD Bearish Crossover: MACD Line crosses below Signal Line.
2. RSI Confirmation: RSI is below 50 but above 30 (bearish momentum, not yet oversold).
3. Optional: Check price is below 200 EMA.
Example: MACD bearish crossover while RSI is 45 → bearish confirmation.
Short Exit / Cover Position
• Exit short when MACD Line crosses above Signal Line, OR
• RSI enters oversold zone (≤30) and starts to rise.
Risk Management
• Stop Loss:
o Place below the most recent swing low (for long trades).
o Place above the most recent swing high (for short trades).
• Position sizing: Risk only 1–2% of account per trade.
• Risk-Reward Ratio: Minimum 1:2.
Example
• Suppose a stock is trading at ₹500.
• MACD bullish crossover occurs, and RSI = 55.
• Buy entry at ₹505.
• Stop loss = ₹495 (below swing low).
• Target = ₹525 (risk = 10, reward = 20).
• Exit early if RSI ≥ 70 and turning down.
Why This Works
• MACD identifies trend direction and momentum shifts.
• RSI filters out false crossovers by checking whether momentum agrees.
• Combining them helps avoid taking trades against the dominant momentum.
Limitations
• May give late signals in strong trends.
• Not ideal in choppy, sideways markets (false crossovers).
• Works best on higher timeframes (4H, Daily, Weekly).
