When bulls and bears are in action, there are very good trading opportunities in the market. Serious traders have figured out many ways to trade such potentially profitable setups, including ways that most average speculators simply cannot see. You can also use them, and in this article, I will explain four different ways to combine Bollinger Bands (BB) and Relative Strength Index (RSI).
In an unusual combination, the Bollinger Bands and RSI generate subtle, subtle, yet reliable signals. Typically, you sell when the price touches the upper Bollinger band and the RSI is above the 70 levels, and you buy when the price touches the lower Bollinger band and the RSI is below the 30 levels. But there are other ways to use these.indicators. In a weak market, bulls face desperate bearish resistance and find it difficult to push prices higher. Likewise, bears have a hard time attacking bulls and winning when the latter put up strong resistance.
The trick is to look for the weak spots of the bulls before going short or look for the weak spots of the bears before going long. When price moves cautiously in an overstressed market, such a signal may form. When you have identified a strong trend, it may continue or reverse sharply. Even occasional pauses in the trend can lead to more volatile movements afterward. You never know what’s going to happen. Sometimes, you learn your valuable lessons from your big mistakes. The trading method I have developed is based on the results of my years of struggling in the markets and learning from past mistakes.
Now I will present you four combinations of Bollinger Bands and RSI. I prefer to use 4-hour charts for this strategy.
Price is touching the lower Bollinger Bands and RSI> 30 = Buy
You are considering buying when the market looks oversold, but only if price is showing signs of an upward reversal (RSI is moving up, exiting the oversold area).
Price touches the upper Bollinger Bands and RSI
You are considering selling when the market looks overbought, but only if the price is showing signs of a downward reversal (RSI is moving downward, out of the overbought area).
Price touches the lower Bollinger Bands and RSI
You are considering buying when the market looks oversold with confirmation signals from two indicators (the RSI is moving down into the oversold area).
Price is touching the upper BB band and RSI> 70 = Sell
You are considering a sell when the market appears to be overbought with confirmation signals from two indicators (RSI is moving up into the overbought area).
In order to increase the reliability of this trading method and to avoid false signals, you should not accept any of the above signals if they are directed opposite to the direction of the exponential moving average with a period of 50 or against the direction of the trend. EMA 50 should show a clear trend. These signals are generated very often, but many traders do not know about them.
I recommend testing this trading method in demo mode so that you can see for yourself how useful this trading idea is. You need to develop determination and endurance in order to walk this path to the end and become a winner. You cannot control the markets, but you can control your reaction to them.
Strategy name: a magic combination of Bollinger Bands and RSI;
Strategy type: trend following;
Focus: great for part-time traders;
Indicators: Bollinger Bands period 20, RSI period 14, levels 30 and 70;
Timeframe: 4-hour charts.
• Buy when the price touches the lower Bollinger Bands and RSI> 30 levels if the signal is consistent with the EMA direction with a period of 50;
• Sell when price touches the upper band BB and RSI • Buy when price touches the bottom bar Bollinger Bands and RSI • Sell when price touches the upper band Bollinger Bands and RSI> level 70 if the signal is consistent with the EMA direction with period 50.
Typeorders : market (instant execution);
Stop Loss : 100pips;
Take profit: 200 points;
Breakeven: Can be used after making a profit of at least 60 points;
Trailing stop: in 50% of cases, you can use a trailing stop after making a profit of about 150 pips;
Money management : for every 2000 (dollars or cents) use 0.01 lot;
Maximum holding time for an open position: close any position that lasts more than two weeks;
The risk to reward ratio: the accuracy of getting a good profit can reach 40%.
The charts presented in this article use the following symbols:
• Bollinger bands are displayed in magenta;
• RSI is displayed in blue (levels in black);
• EMA 50 is displayed in black;
• The red vertical line to the left shows the market entry location. The red vertical line on the right shows the market exit location.
In Figure 1, you see an example of when you shouldn’t have taken a position. The currency pair GBP / USD was flat with a nearly horizontal EMA of 50. You should ignore such a market, regardless of the number of signals generated according to your entry criteria. You should also not trade when the signal is opposite to the direction of the EMA 50 slope.
Figure 1: Market in flat. This is a clear example of when you shouldn’t trade. The GBP / USD currency pair was moving flat. This is demonstrated by a relatively horizontal exponential moving average with a period of 50. Such a market is best ignored.
Figure 2: Price touches the lower BB and RSI above 30. GBP / CHF crossed the lower Bollinger band and the RSI (with period 14) immediately climbed above 30. Price hit the profit target in less than a few days.
Figure 3: Price is touching the upper BB band and the RSI is just below 70. When the EMA 50 slopes down, you should only take into account bearish signals. Here it is clear that the EMA 50 is sloping downward, showing a strong downtrend. On December 17, 2014, a short position was entered and the target was reached in less than 24 hours. Another short position was entered on January 5, 2015. Each of the positions was opened as the price of the EUR / NZD currency pair touched the upper Bollinger band, and the RSI was below 70, but never below 50 – all in the context of a downtrend.
Figure 4: The price touches the lower band BB and RSI below 30. On the currency pair, EUR / AUD price pierced the lower Bollinger Band and RSI (14 periods) while briefly dipped below 30. In the next candle was open a long position and the target profit was realized in less than 30 hours. Despite the fact that the price rose by at least 500 pips, the trend was upward, as can be seen from the EMA 50. The
the trick is to look for weaknesses in bulls and open short positions on them, or identify weaknesses in bears and open them long positions.
In Figure 2, the position for the GBP / CHF currency pair was opened when the price broke the lower BB band, and the RSI (with a period of 14) immediately crossed the 30 levels. The profit target in this position was reached a few days later when the price reached the upper band Bollinger Bands and RSI was below 70.
When the EMA 50 slopes down, you should only look for bearish signals. In Figure 3, you can see that the EMA 50 is sloping downward, showing a strong downtrend. On December 17, 2014, I entered a short position based on a sell signal for this strategy, and my target was reached in less than 24 hours. On January 5, 2015, I entered another short position, which I closed the very next day. Each of the trades was accepted as the price of the EUR / NZD currency pair touched the upper BB band and the RSI was below 70 but not below 50 – both positions were opened in the context of a downtrend. On January 14, 2015, another opportunity appeared to open a decent position, which you can observe on the chart. The idea behind this strategy is simple and logical and can be profitable.
I happily accept buy signals when the 50 EMA is pointing up. In the EUR / AUD currency pair shown in Figure 4, I noticed that the price pierced the lower BB band, and the RSI (with a period of 14) dropped below the 30 levels for a while. This is similar to the case when stubborn bears are presented with a bitter lesson. I went long on the next candlestick formation and made a profit in less than 30 hours. Despite the fact that the price continued to rise by 500 pips, I was pleased with my 200 pips profit.
When the price is near the upper Bollinger band and the RSI goes above 70, you should go short in the context of a downtrend (according to the EMA 50 direction). Figure 5 shows a downtrend for the GBP / CAD currency pair. I took a short position when the Bollinger Bands and RSI met my condition to enter the market. After a week, my goal was achieved.
Figure 5: Price touched the upper BB band and the RSI above 70. When the price gets close to the upper Bollinger band and the RSI exceeds the 70 levels, you should enter a short position if the price is in a downtrend (as shown by the EMA 50). A short position was taken on the GBP / CAD currency pair when the Bollinger Bands and RSI met the conditions for entering the market. After a week, my goal was achieved.
Finding the Invisible
As you can see from these examples, some positions were opened for several hours, while others were closed after several days. Practical wisdom says I must allow the forces of supply and demand to determine what happens to my open position. Signals won’t come when you want. You need to be patient and wait for them, no matter how long it takes. It is also emotionally difficult to allow profits to grow, but it must be done. Follow your strategy fully so that you can take advantage of the random and chaotic market movements. If you want to continue to be successful in the markets, then you need to follow your trading plan. Do things right and you will find success in your trading.
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