2025.11.10 2025.11.10
RSI vs MACD: Which Trading Indicator Is Better and How to Combine Them

Alex Rodionovhttps://www.litefinance.org/blog/authors/alex-rodionov/

When a trader faces the question of which technical indicator to choose — the MACD indicator, known as the Moving Average Convergence Divergence, or the RSI strategy based on the Relative Strength Index (RSI) — it’s essential to first understand how each of these technical indicators works and what trading situations they are best suited for.

In this article, we’ll explore the MACD line, its connection to two exponential moving averages, and how it helps traders measure price momentum and identify trend direction. We’ll also look closely at the RSI indicator, which helps detect overbought and oversold conditions and spot potential trend reversals. Then, we’ll compare both indicators, highlight their unique strengths, and share practical insights for using them in real trading scenarios. Finally, we’ll discuss the MACD and RSI strategy and answer common questions about using these momentum indicators together.

Major Takeaways

• The Relative Strength Index (RSI) is one of the most popular momentum indicators, designed to identify reversal signals in the market. This momentum oscillator works best when market movements occur within a price range. It is particularly effective for traders using a short-term trading style.
• In contrast, the MACD indicator — short for Moving Average Convergence Divergence — is a trend-following momentum indicator that reveals the overall trend direction and strength of price momentum. It is built on exponential moving averages. The MACD line, along with the signal line and histogram, helps traders spot bearish or bullish momentum in the market. The MACD-based trading technique is typically applied to medium-term price movements.
• The main difference between the two indicators, MACD and RSI, lies in how they interpret price movements. RSI trading strategies assume that traders look for sell signals when the Relative Strength Index RSI moves into the overbought region (above 70) and for buy signals when it enters oversold conditions (below 30). On the other hand, MACD-based technical analysis focuses on trend-following: when the lines point in the same direction and the histogram bars move up or down, it signals a clear market direction.
• In trending markets, use MACD. In sideways or ranging markets, rely more on RSI to identify overbought and oversold levels. For greater accuracy, combine the RSI and MACD indicators.
• RSI helps detect potential trend reversals, while MACD confirms the overall trend. 
• The RSI and MACD strategy is considered one of the most effective trading strategies. Use RSI to identify buy and sell signals. When the signal line enters a critical zone, check the MACD: if the MACD line crosses the signal line in the opposite direction, wait for confirmation. A valid bullish signal appears when the MACD line crosses the signal from below upward, while a bearish crossover indicates a possible downward move. Finally, pay attention to the histogram — it can confirm or reject a potential price reversal based on how MACD measures momentum changes and reflects upcoming price action.
• RSI divergences and discrepancies between the MACD indicator and the asset’s price are also important. These technical indicators can signal potential trend reversals, helping traders anticipate market shifts before they occur.

What Is RSI (Relative Strength Index)?

The RSI indicator is a momentum oscillator that helps traders determine whether the market is overbought or oversold. It represents the ratio of average gains to average losses, typically calculated over a 14-day period. This momentum indicator was developed by J. Welles Wilder in the late 1970s.

The Relative Strength Index (RSI) ranges from 0 to 100. When the RSI rises above 70, it indicates that the asset’s price may be overbought, suggesting a possible downward correction. When the RSI falls below 30, it signals oversold conditions, meaning an upward rebound could follow. In essence, the RSI strategy reflects the balance between supply and demand.

Strengths and Limitations of RSI

The RSI strategy often starts with understanding RSI as an oscillator that provides traders with insights into market conditions and potential trend reversals. Main advantages of the RSI indicator:

• It’s an accessible technical indicator, available on all trading platforms. It has minimal settings and is easy to use.
• It’s ideal for identifying overbought and oversold levels. Few technical indicators can compete with RSI in detecting overbought and oversold conditions — its accuracy is among the best.
• It works particularly well in sideways or ranging markets. The Relative Strength Index RSI generates reliable trading signals when the price action is confined within a horizontal range. In non-trending markets, traders can buy when the signal line moves into the oversold region and sell when it enters the overbought region. Traders can trade small short-term price movements, targeting a return to the price range.

However, the RSI indicator has its limitations. During trending markets, it often produces false signals. When strong momentum dominates, the RSI line can stay in overbought or oversold conditions for a long time while the asset’s price keeps reaching new extremes. 

For this reason, the RSI strategy may not suit traders who prefer to follow the overall trend direction. This momentum oscillator works best for short-term trading strategies. However, to maximize its effectiveness, RSI signals should be confirmed with other technical indicators, such as MACD or moving averages.

What Is MACD (Moving Average Convergence Divergence)?

The MACD (Moving Average Convergence Divergence) is a technical indicator that helps traders understand who currently dominates the market — buyers or sellers. It is based on the difference between two exponential moving averages and shows when they start to converge or diverge. 

When the fast-moving average crosses the slow one from below, it generates a bullish signal. A crossover from above gives a bearish signal. The MACD indicator helps traders identify trend reversals and evaluate the strength of price momentum.

The MACD indicator consists of several components and is calculated as follows:

1. Two exponential moving averages are computed — the fast EMA (typically 12 periods) and the slow EMA (usually 26 periods).
2. The MACD line is then calculated using the formula: MACD = EMA(12) − EMA(26). This line shows the difference between the short- and long-term moving averages.
3. The signal line is derived from the MACD line by applying a 9-period EMA. It acts as a filter: when the MACD line crosses the signal line, it produces a trading signal.
4. The histogram is calculated as: Histogram = MACD − Signal Line.

Strengths and Limitations of MACD

Among the main advantages of the MACD indicator are:

• A combination of trend-following and momentum indicators in one tool. MACD measures show both trend direction and the strength of price momentum.
• The MACD works best in trending markets. While some technical indicators may produce false signals that lead to premature entries and losses, MACD often gives clearer insights into a sustained market trend, allowing traders to profit from it until buying or selling pressure fades.
• The Moving Average Convergence Divergence (MACD) includes a histogram that serves as a second opinion, often revealing subtle changes in bearish momentum or a bullish trend before the price reacts. Recognizing these changes, technical analysts can act faster and exit trades at favorable levels.

However, the MACD indicator is not without its drawbacks. Since it is based on exponential moving averages, it reacts to price movements with a delay — only after the changes have already occurred. This lag means that technical traders may sometimes enter or exit positions late or miss the initial price action that signaled the move.

RSI vs MACD: Key Differences

Let’s look at the main features of two popular momentum indicators — RSI and MACD — and see how they differ in practice.

Which is more accurate MACD or RSI?

It’s impossible to say which indicator is more accurate — the Relative Strength Index (RSI) or the MACD indicator. These two popular momentum indicators serve different purposes.

The RSI indicator performs best in sideways or ranging markets. Traders can use the range boundaries to plan their trades, confirming entries when the indicator shows overbought or oversold conditions. 

The MACD indicator, however, helps identify the overall trend direction. The histogram makes it easier to see whether price momentum is accelerating or slowing. In this case, overbought and oversold levels are not used.

When to Use RSI, When to Use MACD

Use RSI when:

• You trade short-term price movements or quick reversals.
• The market is moving sideways with clear upper and lower boundaries.

For example, if an asset approaches a support level and the RSI indicator enters the oversold territory, it’s a potential buying opportunity. If the asset nears resistance and RSI moves into the overbought zone, it may be time to sell.

Use MACD when: 

• You trade in trending markets, either upward or downward.
• You want to confirm a trend and check its strength and stability.

For instance, if a stock is steadily rising, the MACD indicator can show whether the bullish momentum remains strong or starts to fade.

With the RSI strategy, traders usually focus on short-term moves, while MACD is better suited for medium- and long-term trades and for detecting potential trend reversals.

Combining RSI and MACD in a Trading Strategy

Both RSI and MACD are popular technical indicators. Their combination helps traders find stronger setups and filter out false signals. Below are several guidelines for combining the RSI and MACD strategy effectively.

Combine MACD and RSI Indicators to Confirm Price Momentum

Start with the RSI indicator. Add it to the chart with standard settings. If the signal line is above 70, the market is considered overbought, suggesting the price may have moved too far up and that a downward trend could begin soon. Conversely, if the signal line is below 30, it shows oversold conditions, indicating that the asset might be ready for a rebound.

Next, identify the trend direction with MACD. Apply the indicator to the chart: the fast EMA period should be 12, the slow one 26, and the smoothing EMA 9. Watch for MACD crossovers — when the MACD line crosses the signal line from below, it gives a bullish signal; when it crosses from above, it suggests a bearish trend. The histogram can also provide useful hints: shrinking bars show weakening momentum, while growing bars indicate a strengthening trend. 

Example of alignment: 

RSI shows oversold conditions, but the MACD histogram is still red. Then the histogram begins to contract and eventually turns green. The MACD line crosses the signal line upward, forming a clear buy setup within a trending market. 

Example of lack of alignment:

Although RSI entered the oversold territory, the MACD line still shows negative values. The asset continues to fall until the histogram starts to rise, and the MACD line crosses the signal line from below, signaling the start of a bullish trend. 

Divergences and Convergences Confirmed by RSI and MACD

Both RSI and MACD can confirm the presence of chart divergences. To detect them, traders need to look for situations where the price makes a new high, while RSI and MACD form lower highs. This contradiction signals a weakening trend direction and can serve as an early reversal signal for a sell position. 

The same logic applies to convergences:

Real Trade Example Using RSI and MACD

In December 2024, Bitcoin broke the psychologically important $100,000 level and continued its strong upward movement. The overall trend was bullish, and the asset was likely to continue rising. During a correction phase, the price formed two lows — the second lower than the first. However, RSI and the MACD histogram did not confirm the new low, instead forming higher extremes. This divergence indicated growing buying pressure.

A second factor confirming the bullish trend was the MACD line crossing the signal line upward, accompanied by the histogram turning green and RSI moving higher. These conditions aligned perfectly with the average convergence divergence MACD principle. As a result, the price rose from $107,000 to $120,000 — a 12% increase.

Conclusion

RSI and MACD are popular momentum indicators that can serve as the foundation for an effective trading strategy. Both appeared in the late 1970s and remain among the most trusted tools in technical analysis today. Despite their differences, they share much in common: both are oscillators and often confirm each other’s trading signals. 

RSI works best for short-term setups, helping traders identify overbought or oversold levels, while MACD performs better in markets with a strong trend, showing corrections and confirming the dominant direction. By combining these technical indicators, traders can reduce emotional decisions and improve accuracy. The RSI and MACD strategy provides more confident entries and exits, minimizes false signals, and strengthens confirmation before acting on market movements.