The Indicators

Basic Indicators I use and how to use them

‪Let’s start with the most common:

• RSI: Relative Strength Index‬ ‪Formula: 100x(A/(A+B))‬ ‪A is the exponential moving average of increases over the past n days while B is the exponential moving average of decreases over the past n days.‬ ‪It only indicates the momentum of a move (if it’s a strong or a weak one).

Note that the indicator can stay Oversold or Overbought for several days or more, depending on the timeframe. Which is why it should be used with caution.

• StochRSI (Stochastic RSI) is basically applying the stochastic oscillator to the RSI indicator.

To sum up: RSI is better during fast moves while StochRSI is better during sideways Price Action. Notice I said BETTER, it doesn’t mean you can’t use StochRSI during fast moves too (which is what I actually do).

• MACD: Moving Average Convergence Divergence

To quote StockCharts “The MACD turns two trend-following indicators, moving averages, into a momentum oscillator by subtracting the longer moving average from the shorter moving average”

• How to use them?

Let’s take an example with textbook cases. The 1st is Bullish while the 2nd is Bearish. Those are pretty simple and easy ones to spot:

Notice that they both move in the same direction and when the market is moving pretty fast : no sideways moves!

• Sideways Moves

How about sideways moves you’re willing to ask? Well during Sideways PA (Price Action), you wait for a sudden move with volume where both indicators starts to move again!

Let’s take an example: the 1st green vertical line is where you spot the bullish reversal + volume! The 2nd is where you close your position if you’re scalping for quick profits!

• Contradiction

How to interpret when both are in contradiction? Since one is better for momentum (StochRSI) and the other for trends (MACD), the most logic way to interpret this case is: more bounce and sideways moves incoming, but for the big moves it should keep being bullish/bearish.

Let’s take an example:

This is a recent move on Forex where both indicators were in contradiction. You can see that it followed the previous statements: sideways/bounces before continuation of the trend until MACD is bullish again.

Now I expect you understood how to use both indicators and are ready for pretty much every cases, let’s mix everything and see how we could take profit from such indicators with a final example!

Example below is how you usually Open/Close a trade in profit:

Wait, you’ve already seen this chart just before…Yes, it’s the exact “• Sideways Moves” example shown above!

Explanation:

— Both Indicators move in the same direction with a significant volume: you proceed to open your position.

— MACD don’t cross while only StochRSI is crossing multiple times (remember the “• Contradiction” explanation? 😉) while the Volume indicator is excellent on each moves up: you keep your position open.

— On the last move up, the volume fades away. While it starts to go down, you easily spot: Growing Volume + MACD ready to cross + StochRSI has already crossed: you close your position in profit (and maybe open a shorting position…😏)

DISCLAIMER: Never forget that those are INDICATORS, they don’t dictate to the price where to go which means you have to take more parameters into consideration when opening a position such as: Volume/Patterns/Overall Trend etc…

Opening a position counting only on both indicators is pretty risky and is very dangerous, especially in crypto where prices tend to fluctuate a lot.

Last but not least, those are the settings I use for both:

• StochRSI (3,3,14,14,close)

• MACD (12,26,close,9)

It’s also the default settings you get if you use TradingView for your charts!

Good luck on your future TAs and happy trading!

@MasterWind7