Trading is about gaining an advantage. The RSI indicator was popular because it shows overbought and oversold conditions. However, many traders learn that the RSI is not enough and has many fake prints when trending.
Magic happens when RSI is paired with the right indicator. It helps to filter out the noise, gives confirmation when momentum is changing, and in many cases, it doubles the reliability on when to enter and exit a trade. In this guide, we want to tell you RSI best indicator, which is the Moving Average Convergence Divergence (MACD) indicator.
We will take a look at a full RSI trading strategy with this indicator, how it will influence your RSI accuracy, and how it will stack up against other technical analysis indicators. It does not matter if you trade forex, stocks, or crypto; this combination will improve your trading confidence. Let's get to it.
Exploring the RSI Indicator and Its Function in Trading
The Relative Strength Index (RSI) is a type of momentum oscillator that measures the history and current speed of price changes. It assigns a value between 0 and 100. The most common default value for RSI is 14. However, some traders change this value depending on the period of time that they are analyzing.
- Overbought: RSI value above 70
- Oversold: RSI value below 30
- Neutral value: RSI value around 50
An RSI indicator strategy is to buy when RSI is below 30, and sell when RSI is above 70. While this works well in ranging markets, uptrends and downtrends, RSI can generate premature sell signals. Strong uptrends can even cause RSI to stay above 70 for weeks, and can generate premature buy signals or downtrends.
This is why RSI often underperforms alone. It is easy to lose a lot of capital when RSI gives a lot of false signals. The first way to improve RSI accuracy is to use some sort of pairing tool that can confirm your signal.
RSI Alone is No Good. Get a Partner
Where RSI has strengths, it also has weaknesses. One of the most notable strengths is that RSI observes exhaustion. One of the notable, and more adverse weaknesses, is that it lacks the ability to provide context as to whether the market is trending, or whether the market is ranging. News and strong-durational moves can also leave RSI stuck in certain extreme zones and cause whipsaws.
Traders that solely rely on the RSI trading strategy lose more than they win, coming in with a dismal 40-50% win rate. The answer to this problem is to add a trend and momentum filter. This is the area where many traders see their signal quality improve dramatically. This is also the area where trading with the best indicator with RSI, increases in reliability, and decreases false positives by half.
Presenting the Most Reliable Indicator with RSI: MACD
MACD is the most favored indicator when combined with RSI. What makes the MACD stand out? While RSI and MACD are both momentum indicators, they each define and measure momentum differently.
- RSI considers the magnitude of recent price increases and price decreases.
- MACD analyzes two exponential moving averages, which are the 12-period and 26-period moving averages, and includes a 9-period signal line.
Both of these indicators together create a powerful confluence. If RSI indicates that the market is “oversold” and the MACD indicator demonstrates a bullish crossover, then the odds of that market being bullish are significantly better than any other market assumption.
Along with many other trading educators, Investopedia shows that the MACD indicator, when used with the RSI indicator, provides strong market reversal confirmations. The combination of the two indicators also decreases market noise. The combination of the RSI indicator and MACD has turned many traders' average RSI indicator strategies and setups into positive outcomes. This is the precise RSI indicator improvement many traders hope for.
The Most Effective RSI + MACD Strategy (Guided Steps)
The following is the most effective RSI trading strategy, which uses both indicators. The combination of the two indicators should provide traders with the most effective results. This means that, as MACD indicators are used, the settings for MACD (12, 26, 9), and the settings for the RSI should both be kept at a default value of 14.
This combination should provide the maximum RSI results in conjunction with the MACD within the 15-minute, 30-minute, 45-minute, daily, weekly, and monthly intervals, as well as the 15-minute, and daily charts.
Bullish (Buy) Setup
1. Price must be in an overall uptrend or at least above a 200 SMA (optional trend filter).
2. RSI crosses exiting Oversold (from below 30).
3. MACD histogram shifts from Negative to positive, and the MACD line crosses above the signal line (bullish crossover).
4. Look to Enter Long on the Confirming candle close.
Bearish (Sell) Setup
1. Price must be in a downtrend or below the 200 SMA.
2. RSI crosses exiting Overbought (from above 70).
3. MACD histogram shifts from Positive to Negative and the MACD line crosses below the signal line (bearish crossover).
4. Look to Enter Short on the close.
Exit Rules
- MACD showing the opposite crossover or RSI reaching the opposite extreme (70 for longs, 30 for shorts) is a signal to take profit.
- A minimum 1:2 risk-reward ratio must be maintained.
- MACD histogram or a trailing window (moving average) is to be used for trailing stops.
Divergence Bonus
The strategy is even stronger by the presence of the divergences:
- Bullish: Price makes a lower low, but RSI makes a higher low → wait for MACD confirmation.
- Bearish: Price makes a higher high, but, the RSI makes a lower high.
This RSI Indicator Strategy+ MACD confluence will often filter 50% or more of the losing trades you’d take using RSI alone = the “2X more accurate” effect.
Additional Technical Analysis Indicators that Pair with RSI
MACD may be the only indicator that generally has wider applications with the RSI, but others also deserve a brief mention:
RSI + Moving Averages
Add a 50-period or 200-period EMA as a trend filter. Only take RSI buy signals when the price is above the EMA. This simple technique is a game-changer in trending markets.
RSI + Bollinger Bands
When the price touches the upper Bollinger Band and RSI is above 70, you have a certain sell. Here, the bands add a context of volatility that pure RSI does not have.
RSI + Stochastic Oscillator
Both being oscillators, double confirmation (both crossing key levels) creates ultra-tight signals — aka heaven for scalp means.
RSI + Volume
A rising volume spike that occurs simultaneously with an RSI reading that is oversold is a confirmation of real buying interest, not just a temporary bounce.
You have much flexibility with these technical analysis indicators. Start with MACD + RSI, and then try others in a demo account that suits your style.
Mistakes To Avoid
- Trading every RSI extreme and ignoring the broader trend.
- Not having a trend filter when pairing the RSI with another oscillator (e.g. stochastic) - you’ll just get a ton of conflicting signals.
- Following signals in low-volume, weak confirmation markets.
Final Thoughts: The Right Mix Can Change Your Trading
The least surprising, best indicator with RSI is MACD. These two powerful RSI and MACD combo momentum indicators create a noise filtering, direction confirming RSI improvement strategy that every trader needs. The vast majority of traders who make the change experience a newfound confidence in their winning trades, as the false signals just disappear.
Believe you can make this happen? Open your charting software, apply RSI (14) and MACD (12,26,9), and look for your first confluence setup. Make sure to trade on a demo account as you log your results, and see how quickly your confidence grows.
Pairing the best technical analysis indicators makes trading risky, but with enough practice, it’ll pay off.
DISCLAIMER: This blog is NOT any buy or sell recommendation. No investment or trading advice is given. The content is purely for educational and information purposes only. Always consult your eligible financial advisor for investment-related decisions.
