Introduction to the RSI on MA Indicator
One of the most popular ways traders identify trends and trend reversals is with the use of moving average crossovers. It is a simple yet effective method which new traders can easily identify.
The RSI on MA Indicator is a simple oscillator which identifies trend reversals based on moving average crossovers.
What is the RSI on MA Indicator?
The RSI on MA Indicator is a custom technical indicator which combines two widely used indicators, the Relative Strength Index (RSI) and the Moving Average (MA).
This indicator is an oscillator type of technical indicator which plots two lines that oscillate within the range of zero to 100. Trend or momentum direction can be identified based on how the two lines interact. The momentum is bullish whenever the crimson line is above the lime green line and bearish whenever the crimson line is below the lime green line.
How the RSI on MA Indicator Works?
The RSI on MA Indicator works just as its name suggests. It is basically an RSI of two moving average lines. The crimson line represents the RSI of a faster moving average line, while the lime green line represents the RSI of a slower moving average line.
How to use the RSI on MA Indicator for MT4
This indicator has several options which can be modified within its indicator settings.
“RSIPeriod” refers to the number of periods used to compute for the RSI of the moving average lines.
“MA1” refers to the number of bars used to compute for the faster moving average line.
“MA2” refers to the number of bars used to compute for the slower moving average line.
“MAMode” allows users to change the type of moving average lines used, while “MAPrice” allows users to choose which price point on a candle will be used to compute for the moving average lines.
This indicator can be used as a trend or momentum direction indicator. This will be based on how the two lines stack up as mentioned above.
In effect, it can also be used as a trend or momentum reversal indicator which would be based on the crossing over of the two lines. However, this is best done in confluence with other technical indications.
Buy Trade Setup
When to Enter?
Open a buy trade as soon as the faster oscillator line crosses above the slower line. Set the stop loss on the support below the entry candle.
When to Exit?
Close the trade as soon as the faster oscillator line crosses below the slower line.
Sell Trade Setup
When to Enter?
Open a sell trade as soon as the faster oscillator line crosses below the slower line. Set the stop loss on the resistance above the entry candle.
When to Exit?
Close the trade as soon as the faster oscillator line crosses above the slower line.
Conclusion
The crossover of the two oscillator lines of this indicator is a viable way to identify trend or momentum reversals. However, it is not that accurate due to lag. This is because in a way, this indicator is based on the concept of moving average crossovers, which in itself often has lag. This indicator adds another layer of technical indicator to the moving averages using the RSI, which also adds lag.
Although this indicator does have lag, traders can still modify its variables to make it more responsive and useable for identifying trends and trend reversals.
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