Bollinger Bands + RSI Strategy
RISK WARNING: Your capital may be at risk
The Bollinger Bands RSI trading pattern is perhaps the most respected trading system .
In this system , ForzaForex.it illustrates complete trading rules which are added to those commonly found in normal tutorials and which give a greater guarantee of success.
Bollinger Bands RSI involves the combined use of two well-known indicators:
- BOLLINGER BANDS
- RSI INDICATOR (Relative Strength Index)
This is one of the most effective classic techniques , and experienced traders agree. So, is the problem of winning with binary trading now solved?
No. It would be too nice and simple if that were the case.
We also need a cold behavior typical of the seasoned trader who patiently waits for the right signal for entry, without haste.
Furthermore, a possible loss does not distract him from his goal: to follow the rules.
This classic technique is suitable for use with any binary options broker, perhaps coupled with Metatrader.
Taking advantage of the reversal (or rebound)
Before talking about the real rules of the strategy with Bollinger bands and RSI, it is useful to refresh the functioning of the two indicators involved, in order to master the mechanism of the system that we are going to use.
We also recall that the Bollinger bands pair well with an “oscillator” indicator, such as the stochastic . In any case, coupling with the RSI oscillator remains one of the most classic.
The Bollinger Bands RSI strategy, as the name implies, uses both the Bollinger Bands and the RSI indicator to take advantage of the momentary changes in direction (“bounce” or “bounce”) that occur during the main trend, as illustrated in figure:
Entry will take place in “Call” at the second reversal, in the direction of the main trend, as we will see later.
The Bollinger Bands RSI pattern indicators
- Bollinger Bands indicator (20, 2)
- RSI indicator (Relative Strength Index) (14)
At a first observation it would seem valid to buy when the price touches the lower band and to sell when it touches the upper band . Technically this works, but it is a risky way to trade Bollinger Bands.
Sometimes strong trends cross these bands and lead the unfortunate trader to losses.
That’s why we will go alongside the RSI indicator as confirmation for the price reversal at the upper or lower band.
These two indicators, Bollinger and RSI, being widely used by traders, are usually part of the standard equipment of most graphic platforms, such as the Metatrader for example, and in this strategy it is not necessary to change the default settings.
As an alternative to observing the chart on Metatrader, it is convenient to use these indicators directly in the trading platform. They have, in addition to other indicators available as standard , both the Bollinger Bands and the RSI .
Rules of the Bollinger Bands RSI
Rule #1: Identify the current trend.
A lateral market situation is not valid , i.e. without an apparent trend, generally with horizontal price distribution. Otherwise this strategy will not work as well.
How to spot the trend
There are many methods to identify a trend, such as the use of trendlines, lines that combine maximums with maximums of price fluctuations between them and minimums with minimums.
If you want to know the trend directly, without the need for our analysis, you can use the “Technical Investing Summary” , which for example for EUR/USD gives us information like:
The following description concerns a case of a positive trend. The opposite case is analogous.
As an example, suppose we have therefore identified a positive trend, rising prices (uptrend):
Rule No. 2: The asset, which was in an “uptrend” phase, changes direction and heads down towards the lower band until it touches it.
To clarify better, let’s see that prices have a general positive trend, but in the short term the momentary trend changes after generally touching the upper band, bringing the candles down to the lower band.
Rule n°3: Once the candlestick touches the lower band we look at the RSI.
It should be between 30% and 50% and UPLOAD , i.e. same direction as the general trend.
RSI regulation note
– If the RSI indicator does not have the 50% level, simply add it using the settings.– By default it does not have the central line 50% but this can be solved as follows:
Metatrader case– In Metatrader you can add the 50% level in the indicator settings.
IQ Option Case– IQ Option’s RSI has only two levels. To remedy this, two identical indicators can be activated by changing the settings, one with 30 and 50, the other with 50 and 70:
In the case we were observing before of a general positive trend, if the RSI is not in this range 30 – 50, and for example it is over 50, we will not enter the trade.
Otherwise, buy in “put”, RSI should be between 50 and 70 and have a decreasing direction.
Let’s zoom in to see the RSI line in the figure opposite.
Rule n°4: ENTRY MOMENT at the appearance of a decisive bullish candle.
Once you notice this movement prepare yourself for entry.
The price has touched the lower band and the RSI is rising, you can enter after seeing a strong bullish green candlestick:
Second Entrance. When the price touches the central band you can decide to make a second entry with a good chance of success.
An even more comprehensive strategy makes use of divergences:
The Bollinger Bands – RSI strategy is a classic trading system used by many traders. It is simple and gives good results by combining two of the most popular binary options indicators.
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