This Strategy is not the Holy Grail
EMA, MACD and RSI is a smart binary options strategy because it involves more than one condition before taking real action. However, you should be careful because no strategy is the Holy Grail.
Learn how to use EMA, MACD and RSI indicators as one system for trading signals and open a real account.
This strategy uses two Exponential Moving Averages (EMA), one with a period of 7, the other with a period of 26; Relative Strength Index (RSI), with a period of 14, which is used as default in MetaTrader 4; and the moving average convergence/divergence (MACD) indicator with parameters 12, 26, 9.
It would be wrong to start trading on the basis of this strategy without being acquainted with the applicable indicators in it.
Relative Strength Index is an oscillator and a leading indicator. It is the oscillator because its values range from 0 to 100. It will never rise above 100 and will not drop below 0, but the most important levels are between 30 and 70.
As soon as the RSI rises above 70, we believe the currency pair is overbought and expect prices to fall; if the RSI falls below 30, we believe the currency pair is oversold and expect prices to increase.
MACD and EMA Signals
First, let’s apply the indicator to the chart in the trading platform, MetaTrader 4. We recommend you buy the Call option if the 7-period EMA crosses the top of the 26-period EMA; RSI must be above the level of 50 (this is not the level of standing by default, so you have to put it on your own).
MACD should go up. Definitely, you need to detect all three of these conditions. Perhaps these signals were received simultaneously, so you'll have to wait.
In order to buy the Put option, it is necessary that the 7-period EMA crosses the 26-period EMA downstream and the RSI is below 50 (apply this level yourself). MACD should go down. Definitely, you need to detect all three of these conditions.
Why this Strategy is not the Holy Grail
As you can see from the examples below, as soon as all three conditions are met, the price starts to move quickly in the expected direction. However, remember that we specifically sought these setups, and in real market conditions, the situation may be quite different.
This strategy is not the Holy Grail of trading, and sometimes the market can go against us for so long that we will find ourselves at a loss. Moreover, with volatility and price bands, false signals may be generated.
Level 50 of the RSI indicator is often considered a confirmation of the trend, and if we enter into a transaction based on the breakdown of this level, we can be sure that we will go in the direction of the trend.
Since level 50 is not absolutely accurate confirmation of the trend, we except it use two verification indicators (EMA crossing and MACD).
Because this strategy involves three conditions for entry into the transaction, it protects us from many false signals and generates very accurate signals.