Mixing Moving Averages and RSI: A Powerful Strategy to Get 95% Accurate signals for Crypto Day Trading

Relative Strength Index (RSI) is the perfect indicator for finding momentum and inefficiencies in the market by spotting overbought and oversold levels.

As the market starts to rise or decline with decisiveness, the RSI line aims upward or downward, crossing above or below the 50 middle line, whose readiness indicates momentum.

In other cases, a readiness above the 70 limit values indicates an overbought level. Otherwise, below the 30 limit, assets could be oversold.

With all that capabilities, what can traders do? Take notes:

1. An uncorrelation between the price direction and the RSI line leads to divergence. Typically, it happens at overbought and oversold levels.
2. By spotting effective correlation when the price rises together with the RSI crossing above the value of 50, then we speak of confluence, therefore strengthening the momentum.
3. Advanced discoveries on the RSI let spot signals based on failure swings.
   
   On the other side, moving averages (MA) are the perfect tools to find dynamic support and resistance while following a trending market.
   
   When used in long calculated periods, MAs can spot key levels in the price range of an asset where, generally, the sellers and buyers concentrate. Moving averages help traders spot and follow trends but also detect reversal signals when two moving averages cross over.

For instance, a trader could plot one moving average on the periods of 14, 20, or 26, which will let him discern the direction of the price and enter trades in the prevailing direction. However, if this trader wants to spot a turning point, a single MA will not be enough.

Plotting two moving averages with different periods (26 and 50) is a straightforward procedure to detect and seize a potential reversal movement when the price action weakens around a turning point.

Finding 95% Signals: RSI and MA

Enhancing signals from the RSI and moving average tools is possible by employing them together and looking for confluencies among both tools within the different potential signals mentioned above.

95% accuracy? Why not? Let’s explore some exemplary scenarios.

RSI Divergence and MA crossovers (Reversals)

An RSI divergence occurs as follows:

• The price makes a higher high while the RSI makes a lower high (bullish to bearish side).
• The price makes a lower low while the RSI makes a higher low (from bearish to bullish side).
  
  MA crossovers:
  
• Coming out from a downtrend, a crossover of the 26-period MA above the 50-period signals a potential upside reversion.
• Coming out from an uptrend, a crossover of the 26-period MA below the 50-period signals a potential downside reversion.

When these two events come together, there is enough to enter a reversal trade. It is crucial to consider key levels when detecting RSI divergences since not all of the signals anticipate effective reversions.

Learn more about effective methods to spot RSI divergence and convergence!

Divergence and MA crossovers (Pullback-Continuation)

Now, if RSI divergences are not always reversions, we can infer that a continuation signal is also possible.

Let’s see some examples in the following order:

1. The RSI makes a bullish to bearish divergence during a strong trend.
2. The MA crossover of the 26-period below the 50-period signals a potential downside reversion.
3. Then, the RSI remains overbought, indicating there is still momentum.
4. Finally, MA crossover again. The 26-period goes above the 50-period, indicating a continuation.

In this case, since the RSI remains overbought, there is no key level, and the MAs cross two times, traders can be confident of a continuation.

Conclusion

While the RSI spot momentum and deficiencies, moving averages follow a trend toward its potential end. An RSI divergence can anticipate a reversal if it occurs around a key level. MAs can perform crossovers for continuations or reversals.

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