Sequencing RSI, MACD, and average crossovers

One question for each tool

The illustrated protocol assigns RSI, MACD, and a pair of exponential moving averages to three sequential phases of price action: exhaustion of a trend, the advent of a turn, and the birth of the next trend. Each tool is kept on that one phase instead of being merged into a single blended reading.

A TradersWeek editorial reading is that this is sequencing rather than stacking. When a combination can be checked module by module, a failed trade can be traced to the average cross, to RSI, or to MACD, rather than to an overlay that answers every question at once.

Three exclusive questions

The moving-average crossover is a 7-period versus 27-period exponential-average cross that opens and later closes the long-only or short-only regime. In this protocol it answers when a directional regime is born and when that regime is later retired.

The relative strength index is a 14-period oscillator used here only to certify trend exhaustion through price-oscillator divergence, not to time the exact turn. An uptrend exhaustion reading required two rising price highs and two falling RSI highs. A downtrend exhaustion reading required two falling price lows and two rising RSI lows. That pair of tests is the price-RSI divergence.

MACD is a 7-27-7 moving-average convergence/divergence setup used after that divergence to time intervening waves inside an already open directional regime. It does not open the regime and it does not certify exhaustion.

A daily wheat sequence

On the daily December 2007 CBOT wheat example, an uptrend was treated as born when the 7-period exponential average crossed above the 27-period average on 25 May 2007 at a close of 525'0 cents. That same daily example plotted a 14-period RSI and a MACD parameterized as 7, 27, 7 rather than the conventional 12, 26, 9 settings.

Two later wheat highs printed at 907'0 on 12 September 2007 with RSI at 84.18 and at 961'6 on 28 September 2007 with RSI at 76.20. Those prints formed higher price highs against lower RSI highs, which completed the required price-RSI divergence.

RSI was treated as a warning against adding exposure near the end of a move, not as a precise clock for when a trend dies. A completed end was said to require a prior price-RSI divergence.

After that divergence, a downside cross of the MACD 7-period signal line on 3 October 2007 near 927'0, with MACD near 65, was treated as the protocol sell marking the advent of a correction or new trend. An earlier MACD signal-line cross on 14 September 2007 near 69 was not treated as a sell because the required price-RSI divergence had not yet formed.

Stay inside the open regime

The regime protocol is to take the first position on the average cross, then trade only with the open regime while MACD handles secondary waves until the averages cross again. After the 7-period and 27-period averages first crossed, later trades stayed inside that regime: only longs while the uptrend remained open and only shorts in a downtrend, with MACD crosses used to trade intervening waves until the averages crossed again.

The same protocol was described as extendable with extra filters such as volatility or a minimum distance between MACD signals and the zero line. Editorially, those extras remain filters on the existing sequence. They do not replace the three exclusive questions.