How to Use MACD, RSI, and Stochastic Crossovers Together for Swing Trade Setup?

This article discusses how to combine the MACD, RSI, and Stochastic indicators for stock screening and identifying bullish trading signals.

Let's say, for instance, that you are getting ready to go on a road trip. Prior to that, you might want to check how the weather is going to be, the amount of fuel in the car and the pressure of the tyres, all indicators that, when combined, give you a clear picture of whether it is the right time to start your journey or not.

In stock trading, there are also indicators such as MACD, RSI, and Stochastic oscillator, which assess price movement, price change momentum and the trends in the entire market. A combination of these allows for a broader perspective that can be used in screening stocks in assisting traders in deciding where and when to enter or exit the market. This article explains how these indicators together act as very bullish signals for successful trade execution.

Integrating Bullish Crossovers

To understand how to incorporate a bullish MACD and stochastic crossover into a trend-confirmation strategy, it's important to define "bullish." In simple terms, a bullish signal indicates a strong likelihood of rising prices. It occurs when a faster-moving average crosses above a slower-moving average, signalling market momentum and the potential for continued price growth.

In the case of a bullish MACD, this will occur when the histogram value is above the zero line, and also when the MACD line is of greater value than the nine-day EMA, also called the "MACD signal line."

The stochastics’ bullish divergence occurs when the %K value passes the %D, confirming a likely price turnaround below 50 mark.

The Relative Strength Index shows strong momentum above the level of 60, indicating the stronger price action along with the trend.

Crossovers in Action

Below is a historical example of Natco Pharma, how and when to use an RSI, stochastic and MACD double-cross.

In the above chart when the MACD and the stochastics are close to crossing simultaneously with RSI crossing above the 60 mark in June 2024, a notable time in the stock. It even looks like they did cross at the same time on a chart, but when you take a closer look, you'll find all crossovers are within three to four days of each other, which is the criterion for this strategy.

Note: It is always a good idea to test your strategies in simulations before putting actual money on the line.

Strategy

First, look for the bullish crossovers to occur within three to four days of each other while applying RSI, stochastic and MACD crossover strategy, ideally, the crossover occurs below the 50-line on the stochastic to catch a longer price move. Preferably, you want the MACD histogram value to already be or move higher than zero within four days of placing your trade.

Also note the MACD must cross slightly after the stochastic, as the alternative could create a false indication of the price trend or place you in a sideways trend.

Finally, it is safer to trade stocks trading above their 50-day moving averages, but it is not an absolute necessity.

Special Considerations

This strategy allows traders to wait for a more favourable entry point on an upward-trending stock or confirm that a downtrend is genuinely reversing when considering long-term investments.

With every advantage of any strategy present, there is always a disadvantage. Because the stock generally takes a longer time to line up in the best buying position, the actual trading of the stock occurs less frequently, so you may need a larger basket of stocks to watch.

The stochastic and MACD double-cross strategy enables traders to adjust the intervals, helping identify consistent and optimal entry points. By experimenting with different indicator intervals, traders can observe how crossovers align differently and select the timeframe that best suits their trading style, whether they are active traders or investors.

Disclaimer: The article is for informational purposes only and not investment advice.