50-days and 200-days EMA’s are considered best suited moving averages for positional trading strategy. Traders look for trading opportunities when the moving average lines cross each other.
When the fast moving average crosses the slow MA line from below the point of intersection is called the golden cross. It indicates a bull market going forward.
Conversely, when the 50-days MA crosses the 200-days MA from above, it indicates a bear market. The point of intersection is called death cross.
However, MAs are lagging indicators, meaning by the time the crossover happens, the trend reversal has already taken place. To correct this issue, traders combine stochastic RSI with MA lines.
Stochastic RSI implies to calculating RSI using the stochastic formula. Traders combine the two, moving average lines and stochastic RSI, on their trading charts to correct crossover flaws. A stochastic RSI will give an early indication of the formation of a golden cross before the MA crossover happens.
It indicates a beginning of a bullish trend when the stochastic RSI crosses over the 20-level. However, the signal needs confirmation before reacting to it.
To confirm the trend, look for price to break and close above the 200-days EMA. The 200-days EMA is considered as one of the most potent MA in positional trading, price closing above it is regarded as a strong enough signal to react on. In a trade placed using this strategy, the stop-loss is placed just below the most recent swing down.