MACD AND RSI GOOD FOR TRADING REVERSAL

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One of the best indicators I used in trading reversals is MACD paired with RSI.

What Is Moving Average Convergence Divergence (MACD)?

Moving Average Convergence Divergence (MACD) is a trend-following momentum indicator that shows the relationship between two moving averages of a security’s price. The MACD is calculated by subtracting the 26-period Exponential Moving Average (EMA) from the 12-period EMA. The result of that calculation is the MACD line. A nine-day EMA of the MACD, called the "signal line," is then plotted on top of the MACD line, which can function as a trigger for buy and sell signals. Traders may buy the security when the MACD crosses above its signal line and sell - or short - the security when the MACD crosses below the signal line. Moving Average Convergence Divergence (MACD) indicators can be interpreted in several ways, but the more common methods are crossovers, divergences, and rapid rises/falls.

REMEMBER:

• MACD is calculated by subtracting the 26-period EMA from the 12-period EMA.
• MACD triggers technical signals when it crosses above (to buy) or below (to sell) its signal line.
• The speed of crossovers is also taken as a signal of a market being overbought or oversold.
• MACD helps investors understand whether bullish or bearish movement in the price is strengthening or weakening.

The Formula for MACD:

$\text{MACD}=\text{12 period EMA - 26 period EMA}$

MACD=12 period EMA - 26 period EMA



MACD is calculated by subtracting the long-term EMA (26 periods) from the short-term EMA (12 periods). An exponential moving average (EMA) is a type of moving average (MA) that places a greater weight and significance on the most recent data points. The exponential moving average is also referred to as the exponentially weighted moving average. An exponentially weighted moving average reacts more significantly to recent price changes than a simple moving average (SMA), which applies an equal weight to all observations in the period.

What Does MACD Tell You?

The MACD has a positive value whenever the 12-period EMA (blue) is above the 26-period EMA (red) and a negative value when the 12-period EMA is below the 26-period EMA. The more distant the MACD is above or below its baseline indicates that the distance between the two EMAs is growing. In the following chart, you can see how the two EMAs applied to the price chart correspond to the MACD (blue) crossing above or below its baseline (red line) in the indicator below the price chart.

In here I used MACD to enter a reversal trade.

As you have seen on the chart below, my confirmation to trade a reversal is the MACD labeled #2 and the RSI labeled #1 and the candle stick pattern labeled #3. The lines on the chart presents the Other indicator as HIGHER HIGHS green line and LOWER LOWS red line and the blue and yellow line is EMAs. 

The RSI has shown an uptrend coming from the level of oversold which is over the 25 line and the MACD line crosses above the signal line. On the MACD indicator, you see the gap between the zero line  with the 2 moving averages presented with a yellow arrow of which is going closer to the zero line determining the volume of the sellers are weakening. On the Candle stick pattern on the chart you see a big green candle and the two next candles are bears which has a lower wicks showing a rejection of the bear market. I entered long trade upon the the 2 EMAs crosses each other. The shorter EMA yellow line crosses above the longer EMA blue line with a 5 minute trade. The result is here, a winning trade.

MACD is often displayed with a histogram (see the chart above) which graphs the distance between the MACD and its signal line. If the MACD is above the signal line, the histogram will be above the MACD’s baseline. If the MACD is below its signal line, the histogram will be below the MACD’s baseline. Traders use the MACD’s histogram to identify when bullish or bearish momentum is high.

Another examples of How to Use the MACD Indicator

Crossovers

As shown on the following chart, when the MACD falls below the signal line, it is a bearish signal which indicates that it may be time to sell. Conversely, when the MACD rises above the signal line, the indicator gives a bullish signal, which suggests that the price of the asset is likely to experience upward momentum. Some traders wait for a confirmed cross above the signal line before entering a position to reduce the chances of being "faked out" and entering a position too early.

Crossovers are more reliable when they conform to the prevailing trend. If the MACD crosses above its signal line following a brief correction within a longer-term uptrend, it qualifies as bullish confirmation. In the presentation below another reversal is made. From a downtrend market as shown on the MACD indicator the 2 moving averages is going closer to the zero line of the MACD until the MACD line and signal line  crosses the zero line and also the histograms are above the zero line confirming a bullish reversal.

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