Bollinger Bands Trading Strategy

Introduction

• Trading strategy using Bollinger Bands and RSI
• Simple and high success rate if used correctly

Setting Up Bollinger Bands

1. Go to Trading View or your preferred trading chart platform.
2. Click on the Indicators tab and search for Bollinger Bands.
3. Modify the default settings:
   • Change length to 30
   • Standard deviation: 2
   • Remove background color and change line color to red (personal preference)

How Bollinger Bands Work

• Center line: moving average based on the last 30 candlesticks
• Upper and lower lines: standard deviation lines

Adding RSI

1. Search for RSI in the indicators tab.
2. Click on Relative Strength Index.
3. Modify settings:
   • Upper Band: 70
   • Lower Band: 30
   • Length: change from 14 to 13

Understanding RSI

• indicates if a security is overbought (>70) or oversold (<30)

Trading Strategies Using Bollinger Bands and RSI

• Based on mean reversion concept: price tends to return to average.

Entry Signals

• Long Trade:
  • Price goes below lower Bollinger band AND RSI < 25
• Short Trade:
  • Price goes above upper Bollinger band AND RSI > 75

Avoiding False Signals

• Common issue: false signals when price moves above/below Bollinger bands
• Example: price moves below lower band, but RSI not below 25 -> wait for confirmation

Key Consideration for Profitability

• Strategy struggles during sideways market movement.
• Sign of sideways movement:
  • Narrow Bollinger Bands
  • RSI staying within a limited range
• Tip: Wait for breakouts with momentum; avoid entering trades in this condition.

Divergence Strategy

• Example of bullish divergence:
  • Price makes a new lower low while RSI makes a higher low
• Enter trade if RSI is below 25 and price below lower Bollinger band
• Indicates potential for price reversal and new higher high

Conclusion

• Combined Bollinger Bands and RSI can lead to profitable trading strategies.
• Reminder to like the video and check out additional content (e.g., MACD strategy with 86% win rate).