How to Trade Trending Markets Using Moving Averages and RSI Confluence

Jasper Osita - Market Analyst

2025-07-24 12:14:02

Goal of This Lesson

To help you trade strong market trends with more confidence and clarity — by using moving averages to find direction and RSI to confirm momentum strength before you enter.

Real-Life Analogy: A Car Accelerating on a Highway

Imagine you're driving on the highway.

The lane markers are your moving averages — keeping you aligned in the right direction.
Your speedometer is the RSI — telling you how much power the car (price) has at the moment.
The moment you press the gas and accelerate smoothly is your price action confirmation — a sign it’s time to go with the flow.

You don’t accelerate in a traffic jam (sideways markets), and you don’t blindly press the gas if your engine (momentum) is weak.

You wait for the road to open (trend) and the power to kick in (RSI), then go full throttle (entry).

Why This Works So Well in Trending Markets

Tool	What It Does
20 EMA / 50 SMA	Identify trend direction and pullback zones
RSI (14)	Measures momentum strength in the trend

When both tools point in the same direction, you have confluence — and higher probability setups.

How to Trade Momentum Using RSI

Most traders misuse RSI. They buy when it’s “oversold” or sell when it’s “overbought.” But in trend trading, we do the opposite.

RSI in Trending Markets:

Market Trend	What RSI Should Do
Uptrend	RSI stays above 50 and makes higher lows
Downtrend	RSI stays below 50 and makes lower highs

Key Insight:

In uptrends, RSI > 50 = strong buyers still in control.
In downtrends, RSI < 50 = sellers still dominate.

If RSI starts dropping below 50 in an uptrend → momentum is fading

If RSI starts rising above 50 in a downtrend → trend might reverse

Use this RSI 50 “midline” as your trend confirmation filter.

Step-by-Step Strategy for MA + RSI Trend Confluence

Step 1: Identify the Trend with Moving Averages

Use 20 EMA for short-term flow
Use 50 SMA for broader trend bias

Bullish Trend: Price above both, MAs sloping upward

Bearish Trend: Price below both, MAs sloping downward

Flat or twisted MAs = Ranging. Wait.

Step 2: Wait for a Breakout

Let price breakout of the range & price above the:

The 20 EMA
The 50 SMA

You will anticipate a Golden (Bullish) or Death (Bearish) Cross.

Step 3: Confirm Strength with RSI

Strong Momentum	Weak Momentum
RSI above 50 (uptrend)	RSI drops below 50 (no go)
RSI makes higher lows	RSI sideways or overbought
RSI supports breakout	RSI divergence or fading

Don’t just trust RSI levels — watch the RSI trend itself.

Wait — Why Breakouts Now? I Thought We Were Trading Pullbacks?

Great question — and this is where context matters.

In the previous lesson, we focused on pullback entries — buying when price dips into moving averages or Fibonacci zones within a trend.

So why are we now telling you to look for breakouts?

Because sometimes, there is no clean pullback — and waiting for one means missing the move entirely.

Another: There are times that price will fall short in pulling back on the moving averages.

When to Trade Pullbacks vs. Breakouts

Situation	What to Look For	Strategy
Clean trend, price returns to MA	Bounce at 20 EMA or 50 SMA	✅ Pullback Entry
Strong trend, no deep pullback	Price keeps pushing and consolidates above MAs	✅ Breakout Entry
Sideways chop or weak trend	MA and RSI not aligned	❌ Wait

Trend Breakouts with MA + RSI Confluence

Sometimes, price builds pressure just above the 20 EMA. It doesn’t dip — it compresses, then explodes upward.

In that case:

20 EMA holds as dynamic support
RSI stays above 50, showing strength
Price forms tight range → breaks out → BOS (break of structure)

Instead of waiting for a dip that never comes, you enter the breakout when all the signs align.

This flexibility lets you capture more opportunities without violating your system — because the MA and RSI are still your foundation.

Reminder:

You’re not “changing” your system — you’re adapting the entry style (pullback vs. breakout) to the trend’s behavior, while still using moving average + RSI confluence to filter the trade.

Step 4: Entry Trigger — Let RSI & Price Action Confirm

At this point:

MAs are aligned (20 EMA above 50 SMA = uptrend)
RSI is above 50 and climbing (momentum confirmation)
Price is either pulling back into MAs or coiling for a breakout

Now you need one last thing: confirmation from the candles themselves.

Here’s how to spot it:

A. If Price Pulls Back to MAs:

Look for a reaction at 20 EMA or 50 SMA:

Bullish engulfing candle
Wick rejections
CHoCH (change of character)
Liquidity sweep + bounce

RSI should:

Stay above 50 (uptrend)
Bounce or climb as price bounces from MA

Enter on candle close after confirmation.

B. If Price Doesn’t Pull Back or You Missed It — Trade the Breakout:

If price stays above 20 EMA and forms a tight range:

Wait for price breakout above structure
RSI should remain above 50 or even spike above 60+
This signals momentum continuation

Entry trigger: Break of short-term high + bullish candle close

Confirmation: No breakdown below 20 EMA + strong RSI

Where to Place Stops

Entry Type	Stop-Loss Strategy
20 EMA Pullback	Below swing low or wick under EMA
50 SMA Pullback	Below structure or zone of interest
Breakout Entry	Below breakout range or structure
Aggressive RSI Entry	Below entry candle or minor structure

Step 5: Trail Your Winner with Price & RSI Clues

Method 1: Structure-Based Trailing

In uptrend, trail below each higher low
In downtrend, trail above each lower high
Adjust SL as structure develops

Method 2: RSI Divergence + MA Confluence Exit

Stay in trade as long as price remains above 20 EMA
RSI should remain above 50 in a long
Exit if RSI creates a divergence

Method 3: Set Targets

A minimum of 2R is good

Pro Tips for Trading MA + RSI Confluence

Use Lower Timeframes for trades, and Higher Timeframes for confirmation bias
Stick to trending conditions (MAs sloping, RSI directional)
Avoid overtrading RSI overbought/oversold — focus on trend support
RSI > 60 in uptrend or < 40 in downtrend often signals strong momentum

Common Mistakes to Avoid

Entering against trend because RSI is “overbought” or “oversold”
Taking MA bounces without RSI support
Using RSI in sideways markets (very unreliable)
Setting stops too tight around moving averages

Final Thoughts

When price moves with power, your job is to ride it with logic — not guess.

This strategy gives you a trend filter (moving averages) and a momentum meter (RSI) — two of the most reliable tools when used together.

You now have the complete playbook to:

Spot the trend
Time the pullback or breakout
Confirm momentum
Enter with clarity
Manage the trade confidently

Trend + Momentum = High-Probability Trading.

Here’s your action plan:

Add 20 EMA, 50 SMA, and RSI (14) to your chart
Scan 5–10 pairs for clean trend conditions
Backtest entries using price + RSI + MA confluence
Log your trades in a journal — pullbacks and breakouts

When these tools align — don’t hesitate. Ride the momentum with structure and confidence.

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This content may have been written by a third party. ACY makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplies by any third-party. This content is information only, and does not constitute financial, investment or other advice on which you can rely.

Autor

Jasper has been in the markets since 2019 trading currencies, indices and commodities like Gold. His approach in the market is heavily accompanied by technical analysis and of course, supported by fundamentals. He has a background in trading proprietary firms and has been teaching students how to navigate themselves in the markets from basic to advance concepts.

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