There are a plethora of trading strategies online that a trader can consider to increase winning chances. However, the only problem with these strategies is that they often do not match the trading style of a particular trader. as a trader, you must adapt to a particular trading strategy that is comfortable with your specific trading style and psychology. Make sure that you understand its steps, requirements, and projections or expected results. For this article, I’ll be sharing with you a popular strategy that makes use of three indicators. If you’re using RSI, EMA, and Stochastics indicators on your trades, you’ll find that combining all three indicators brings a higher accuracy of possible market movement.
Contents
The Triple Indicator Strategy
The Triple Indicator Strategy suggests that the market direction can be assumed more accurately if a particular chart confirms three specific indicators – these indicators are EMA200, RSI, and Stochastic Oscillator. This strategy also moves toward the same direction as the trend – as verified by the EMA200.
Before we check out a few examples on actual charts, let’s first understand its components.
EMA
EMA or Exponential Moving Average is a kind of moving average that emphasizes the recent price data. It is different from the SMA or Simple Moving Average which gives equal emphasis to all price data. The primary difference between the EMA to the SMA is that EMA is more sensitive to price movement which means it moves faster than the SMA on a chart. The EMA is a preferred moving average for this strategy for the reason that it delivers a faster and more accurate projection of the price movement
RSI
The RSI stands for Relative Strength Index and is an indicator used to measure the strength of price movement. It indicates whether an asset is overbought or oversold. An asset is said to be overbought when the RSI line reaches the 70 reading. On the other hand, the asset is said to be oversold when the RSI line reaches below the 30 reading. A common action of traders for RSI readings is to sell when it is overbought, and buy when the asset is oversold.
For this particular strategy, however, we’ll be using the RSI indicator for a different purpose. This purpose is to track convergence and divergence on the chart. Convergence happens on a chart when the price and the RSI indicator move toward each other. The Divergence on the other hand happens when the price and RSI indicator move away from each other. The RSI movement along with the price movement will be projected by drawing a line connecting its crests or troughs (highs or lows).
Depending on the market trend that is determined from the EMA200, the convergence or divergence can deliver a buy or sell signal.
Stochastic Oscillator
The Stochastic Oscillator is also known as Stochastic Indicator, is an indicator that provides assumptions for trend reversals. It takes its emphasis on the price movement and identifies an asset as overbought or oversold. The Stochastic Oscillator involves two intersecting lines which are computed using a complex formula. It is assumed that whenever these two lines intersect, a trend reversal is about to happen – this is what we’re going to adapt for this strategy.
How to Use the Triple Indicator Strategy
To implement the strategy, you’ll need to make sure your indicators are all set. The indicators are set by clicking the indicator icon on the upper left corner of your Pocket Option trading dashboard. Simply choose RSI, Stochastic Oscillator, and Moving Average from the list of options.
For the moving average, simply edit the settings by choosing EMA, and assigning 200 as the period. For the RSI and Stochastic Oscillator, use the default settings (usually RSI14, and Stoch 14,3,3).
As soon as all indicators have been set in place, it is now time to look for an asset that has all the requirements. The first is to check the trend – for this, you’ll need to refer to the EMA200. Whenever the candles are formed on top of the EMA200, it is identified as an uptrend – as shown in this example.
Next is to verify the convergence or divergence from the RSI. To have a clear view of the convergence and divergence between price and RSI, draw a line connecting the higher lows of the candles, and lower troughs or base of the RSI line. We can see in this example divergence of the price and RSI, which is identified as a buy signal.
After verifying the EMA200, and RSI requirements, you can then proceed with checking the last indicator which is the Stochastic Oscillator. Simply note the intersection of the lines as this would signal a possible trend reversal.
An ideal entry point for long trades would be after a confirmation candle, or after the lines intersect at the Stochastic Oscillator.
Another example is a bearish market. Referring to the image below, the market is at a downtrend because the candles are formed below the EMA200 line. As well, a convergence is identified by drawing a line for the price and the RSI – if the lines meet together when extended, it is a convergence, otherwise would be a divergence. Lastly, the Stochastic Oscillator shows an intersection of the lines indicating an ideal entry for short trades.
Conclusion
This strategy works best with markets that have high volatility and strong trend. This is for the reason that convergence and divergence are more visible when the trend is strong enough.
In addition, this strategy can be further improved by incorporating candlestick patterns such as the Doji, hammer, and other patterns that signal a reversal. After the intersection from the Stochastic Oscillator, a confirmation candle usually verifies the trend reversal – usually, the confirmation candle is in the form of a reversal candlestick pattern. Knowing your candlestick patterns greatly improves how you use this strategy.
This triple indicator strategy using the EMA200, RSI, and Stochastic Oscillator can only be effective if you have gained enough experience. The best way to improve your trading skills with this strategy is to trade on real-time trades using demo money. Pocket Option comes with a demo account that lets you trade on real-time stocks and assets without the need to pay for anything. The demo account gives you access to all resources on the site including all the indicators and tools.
If you have any thoughts, comments, or suggestions about our triple indicator strategy using EMA, RSI, and Stochastic Oscillator, and how to further improve this strategy, please do not hesitate to message us through the box below.
Enjoy and Good luck!
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