A MACD RSI bearish reversal is confirmed when the price forms a higher high (or a new high in an uptrend) while the RSI forms a lower high, indicating negative divergence, AND the MACD line crosses below its signal line, indicating a shift in downward momentum. These signals suggest a potential trend change from bullish to bearish.
How to Identify a MACD RSI Bearish Reversal
To confirm a bearish reversal using both MACD and RSI, look for the following combined signals:
1. Negative Divergence with RSI:
The price of an asset is making a new high or a higher peak.
The Relative Strength Index (RSI), however, is failing to make a new high, instead forming a lower high at the same time. This difference in price and indicator movement is called negative divergence.
2. Bearish MACD Crossover:
After the negative RSI divergence is observed, the MACD line crosses below the signal line.
This crossover signals a potential shift from upward momentum to downward momentum.
Why These Indicators Work Together
RSI:
The RSI identifies if an asset is overbought (above 70) and signals potential exhaustion in the upward trend. A negative divergence with the RSI shows that the upward momentum is weakening.
MACD:
The MACD helps determine trend direction and momentum. A bearish crossover confirms the shift in trend from positive to negative, increasing the probability of a successful trade.
