In the world of financial markets, there are numerous systems designed to help traders make profitable decisions. One such system is the “Combination” strategy — a methodology based on signals from two widely used oscillators: MACD and RSI. This approach not only highlights the importance of combining different technical analysis tools but also allows traders to offset the weaknesses of each individual indicator.
It should be noted that Moving Average Convergence Divergence (MACD) and the Relative Strength Index (RSI) are, without exaggeration, two legendary indicators used by millions of traders worldwide.
- MACD helps determine the strength of the current market movement by showing the divergence between moving averages. It consists of a zero line, a histogram, and a signal line.
- RSI, in turn, assesses trend strength and oscillates around the 50 level, enabling traders to identify whether the market is in an overbought or oversold condition.
Both indicators are built into most trading platforms, including Pocket Option, making them readily accessible without the need for third-party tools.
Setting Up Your Workspace
Preparing your chart for the “Combination” strategy takes just a few minutes. To adapt your workspace for this methodology, you need to:
- Open a chart for a highly volatile asset.
- Select a 1-minute candlestick timeframe.
- Add both indicators: MACD and RSI.
Note on volatility: A highly volatile asset is characterized by pronounced price swings, large candle bodies, and relatively few doji (bodyless) candles. Volatility can be visually assessed without additional tools, simplifying the analysis process.
Indicator settings:
- MACD: Use default parameters.
- RSI: Set period to 14 and enable the 50-level reference line.
As mentioned earlier:
- MACD acts as an oscillator that measures the divergence between moving averages and evaluates the strength of the current market movement. The histogram shows the difference between two moving averages, while the signal line helps identify optimal entry and exit points.
- RSI assesses trend strength via a single line that oscillates above or below the 50 level. Readings above 50 indicate bullish momentum, while readings below 50 suggest bearish pressure.
How to Trade Using the “Combination” Strategy
Trading digital options with this system relies on converging signals from both indicators.
For MACD, a key signal occurs when the signal line exits the histogram area:
- If the signal line moves above the histogram (from below the zero line), it may indicate a potential downward impulse.
- Conversely, if the signal line moves below the histogram (from above the zero line), it may signal a strong upward price surge.
For RSI, the position relative to the 50 level confirms the direction:
- Above 50 + rising = bullish confirmation.
- Below 50 + falling = bearish confirmation.
Entry Rules:
To buy a CALL option:
- MACD signal line exits the histogram below the zero line,
- AND RSI is above 50 and trending upward.
To buy a PUT option:
- MACD signal line exits the histogram above the zero line,
- AND RSI is below 50 and trending downward.
Expiry Time:
Set the expiry to the duration of two candles (i.e., 2 minutes on the M1 chart).
Conclusion
The “Combination” strategy offers a simple yet effective methodology for binary options trading by cross-verifying signals from two of the most trusted technical indicators. By requiring agreement between MACD and RSI, this approach enables traders to make more confident decisions and significantly reduce the risk of false signals in fast-moving markets.
