› Best Indicator Combination of MACD with Alligator and RSI

Best Indicator Combination of MACD with Alligator and RSI

Moving Average Convergence Divergence (MACD), invented by Gerald Appel, is a perfect leading indicator which could define exactly whether a trend is gathering momentum or not.
Meanwhile, Williams Alligator – a comprehensive lagging beacon developed by Bill Williams – is appreciated by traders for its accuracy in identifying tradable trends.
And, once these indicators are combined together, a powerful trending system will be created. That’s the system we want to introduce to you today.

What is MACD Indicator


MACD is a popular leading indicator used in technical analysis of stock prices.
Developed in the late 1970s, it has been quickly favored by traders due to its flexibility and simplicity, and up to present, it becomes a competent analyzing tool for various financial markets, including binary options and forex.
The main feature of this beacon is to confirm whether a signal is worth trading or not, or broadly speaking, to determine market momentum.

Combination of Indicators


Therefore, the MACD is normally combined with a lagging indicator which has the function to identify tradable trends and valid entries. In this case, the Alligator Indicator is the MACD companion.
Composed of three exponential moving average lines, this lagging guide offers traders an obvious technical outlook of the market, making the trend trading work much easier.
Besides, a Relative Strength Index (RSI) is also added to make the system more accurate. Having the same responsibility as the MACD but different operation, the RSI helps filter out false signals effectively.

The settings of the three indicators used in this system are as follows:

Now, before we go any further, we always recommend taking a piece of paper and a pen and note down the rules of the trading strategy.

  • Alligator set of 25-5-2;
  • MACD with the setting of 12,26,9;
  • RSI with the parameters of 30.

Over the last 12 months being carefully tested, this technical tool has so far affirmed a win-rate of 81%.

How to use the system to trade binary options


This system works best on the one-hour chart and could be applied to any currency pairs, stock indices, commodities or cryptocurrencies.

CALL opportunity is determined when:
  • Prices close above all three EMAs of the Alligator;
  • The MACD turns above 0;
  • The RSI line crosses above 50.


Best Indicator Combination of MACD with Alligator and RSI

Conversely, a put occasion is defined when:
  • Prices trade below all three EMAs of the Alligator;
  • The MACD turns below 0;
  • The RSI line crosses below 50.

Best Indicator Combination of MACD with Alligator and RSI

Below are the important notes when trading with this system:
  • Only one position should be opened at a time;
  • 5-10 fully closed candles are required to affirm a trading occasion tradable;
  • The expiry time should be established 5 times larger than the trading time frame.

For example, you can set the finishing time to be 5 hours when trading on the 1-hour chart.

If you like this strategy, you might also be interested in this Moving Average Strategy

Pros and cons


Pros:
  • Easy-to-use, general-purpose;
  • Generating highly accurate trading opportunities by its strict checking requirements;
  • Enabling traders to make continuous profits from grand trends.

Cons:
  • Requiring a high level of patience;
  • Necessitating traders to constantly observe the charts.

Conclusion


Trend-following is proven by many professional binary options traders as the best trading theory.
Containing three powerful indicators combined harmoniously, this technical system based on trend-sticking rules has shown itself to be a very effective trading tool with a good testing result and lots of advantages mentioned above.
If you haven’t had your own strategy, you can consider starting with this comprehensive technique.
Just remember to apply it along with risk controlling and psychology managing methods in order to minimize the risk and maximize your potential profits.


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