How to use RSI and Moving Average Indicators Combination

We are back again to RSI, but accompanied with the Moving Averages this time.

Our choices are the strategies easy to understand for the beginner traders, but at the same time attractive for the more advanced ones.

We believe this trading strategy is one those, but only backtesting can reveal all strong and weak sides of the strategy.
 

What is RSI based MA?

RSI (Relative Strength Index) is used to check the strength of the trend and the possibility of the coming reversals. This indicator is popular among the traders because of the simplicity of interpretation.

What can we learn about the price from this indicator?
 

RSI Levels

Overbought and oversold levels (in two words – you do not set the buy trade when the indicator is in the overbought level and vice versa – you do not set the sell trade when the indicator is in the oversold area).
 

RSI Divergence

When the price still shows the continuing trend, but the indicator forms extremes in the opposite direction of the trend signaling that this trend is about to finish.
 

RSI Figures

Also this indicator can form different figures of the technical analysis and they can be interpreted as the end of the trend coming.

This time let us check whether another reading of the indicator common for traders (the intersection of the 50 line) is suitable for trading too.

As another trigger signal of the trade entries we take the intersection of the Moving Averages. Moving Averages are one of the best tools for pointing the trend directions and coming reversals.
 

Ready to test MA(RSI) trading strategy?

To check this (or any other) strategy’s performance you can

download Forex Tester for Free or

try Forex Tester Online (FTO) for Free.

Check how to use FTO simulator in our step-by-step guide.

RSI and EMA Trading Rules: Step-by-Step Guide

Indicators: RSI (21); 5 Exponential Moving Average, 12 Exponential Moving Average.

Timeframe: 15 min and above (we backtest at 30 min timeframe).

Currency pair: Any, but we take EURUSD as an example.

Stop Loss/Take Profit: 15/30 pips.

The trade set-up rules are very simple:
 

Long Entry Rules

1. 5EMA should cross the 12 EMA to the upside, providing a signal of the possible reversal into the uptrend.
2. RSI should cross the 50 level upwards.
3. At the candlestick when the two conditions are met, enter the Buy trade.

Short Entry Rules

1. 5EMA should cross the 12 EMA to the downside, providing a signal of the possible reversal into the downtrend.
2. RSI should cross the 50 level downwards.
3. At the candlestick when the two conditions are met, enter the Sell trade.

Backtesting the RSI with Moving Average Strategy: Results & Analysis

Profits

Trades|Period*

*How long it took us to enter the 50 trades for the Training Set and 20 trades for the Forward Testing.

Improving the Strategy: Tweaking Settings for Better Performance

What particularly can be a matter of the additional change and backtesting?

• At the beginning of the article we have mentioned the readings of the RSI – try the strategy with the 30/70 levels intersection.
• Stop loss and take profit – maybe manual setting of the SL and TP over/below the swing high/swing low can work better to prevent premature exits.
• Timeframe and the currency pair – try this strategy for scalping or the daytrading;
• You can try RSI indicator alone or accompanied with other indicators. Try what combo can work the best for you – maybe Stochastic or RSI, Awesome Oscillator or Parabolic SAR.

As you can see, adjust, test and then change accordingly – is the only possible way to find the options suitable for YOU.

There are dozens of ways to trade the indicator alone or with the combinations with other ones. We show only one way to trade, however, nothing should stop the curious minds to try different settings and check how it can influence the final results.
 

Conclusion: Is the EMA(RSI) Strategy Right for You?

Within the GIVEN setting the strategy didn’t reveal astonishing results: the profits gained were too small to cover even spread, not saying about the leaving the trader satisfied.

If you check the period when the trades took place, you can notice that it took less than a month to enter the needed amount of trades.

In connection with the low profits gained, I guess it can show us that probably within the settings we have picked, the indicators don’t filter the trades enough – by volume of trades, but not effective ones.

Check below what settings you can try to change and backtest further.

Please, note: you shouldn’t discard the strategy, probably you can try different adjustments from the list below to find the best suitable one.

It DOES NOT mean the strategy itself is not profitable, the aim of our experiment wasn’t to give the ready advice you should blindly believe in, but to show that even the slight details of any trading strategy should be carefully backtested before being used during the live trading.
 

FAQ

What is the best timeframe for the RSI and Moving Average strategy?

This strategy can be used on various timeframes, but backtesting showed the best results on the 30-minute chart.
 

What are the best settings for the RSI and Moving Averages?

Our backtesting used RSI (21), 5 EMA, and 12 EMA. Experiment with different settings to find what works best for your trading style.
 

How to calculate RSI based moving average?

To calculate an RSI-based moving average, first compute the RSI (e.g., 21-period) to measure momentum. Then, apply a moving average (e.g., 5-period EMA) to the RSI values. This smooths the RSI line, reducing noise. Use crossovers between the RSI and its EMA to identify momentum shifts. This approach focuses on smoothing RSI itself for clearer signals, distinct from strategies combining RSI with price-based EMAs.