Bollinger Bands
In this video, I m going to show you a trading strategy that works so good I just have to
tell you guys. And it involves using Bollinger Bands and RS. It s simple, easy to use, and
has a pretty high success rate if you use it correctly. Well enough talk, let s get
straight to it. The first step for this strategy is setting
up the Bollinger bands. If you ve never used Bollinger Bands before, your lucky you clicked
this video, because this indicator is absolutely incredible and is great way to find support
and resistance levels. So the first thing we want to do is to go
to trading view or whatever trading chart platform you use, click the indicators tab,
and type in Bollinger Bands . Now, the default settings trading view will
give you, are nice, but we want to change them for this specific strategy.
First thing you want to do is go to the length section and change this value to 30, make
sure the standard deviation is set to 2. Then I m also going to remove the background
of the indicator, and change the lines to red. This is all personal preference, you
can do whatever you prefer here. So if you didn t know, this is how Bollinger
bands work. The center line, is a moving average. So whatever amount the length is, this indicator
is going back that many candle sticks and finding the average between them. So for this
strategy we are going back 30 candlesticks. The lower and upper lines are standard deviation
lines. Alright we got the Bollinger Bands setup,
now let s add the RSI. To do this, just go to your indicators tab,
type in RSI and then click this top one that says Relative strength index
Now that we have RSI added let s modify the settings a bit. Make sure that upper band
is set to 70, and your lower band is set to 30.
Then this length is probably going to be set to 14, make sure to change that to 13 for
this strategy. If you haven t used RSI before it s a great
indicator to tell you if a certain security is being overbought or oversold.
If the line is above the 70 value, its being overbought, if the line is below the 30 value,
its being oversold. Now it s time to pair these 2 indicators together
and get some profitable trades going. Make sure you watch the rest this video, because
im going to explain a crucial tip to make this strategy working just okay, to turn into
a money making machine. So there are 2 different strategies you can
choose from when using these indicators. Both of these strategies are built around the concept
called mean reversion. What s mean reversion you my ask? Well, mean
refers to the word average, and the word reversion means returning to
So to put it simply, the phrase mean reversion just means returning to the average. Which
is exactly what we are going to be shooting for with this strategy.
So as an example, in most cases if there is extreme price movement in one direction whether
its up or down, we can pretty much predict after that big price movement, the price will
return back to the average (the moving average right here).
So if the price goes above the upper Bollinger band, we want to enter a short trade. If the
prices goes below the bottom Bollinger band, we want to enter a long trade.
Simple enough right? Well, if you did this by itself, odds are it wouldn t work to good.
That s why we added the RSI earlier. So as you can see in this example the price
went above or below the Bollinger bands many times giving lots of false signals. So if
you went in every time here, you probably lost money.
To solve this issue we are going to add one more requirement. You can only go in if the
RSI hits an extreme value. Meaning, we can only enter a long trade if
the price moves below the lower Bollinger band and the rsi goes below the value of 25.
For shorting, we will only enter a trade if the price goes above the upper Bollinger band,
and the rsi goes over the value of 75. So as an example here we are looing at apple
and the price starts going below the bottom Bollinger band here, but at this point in
time the RSI is still not where we want it to be. So we wait it out a bit until the line
goes below 25. which it proceeds to go down all the way to 20, we enter a long trade at
this point, and the price returns to the average just like we predicted it would.
Now there is some crucial information you need to know about this strategy or else it
simply just wont work. This next tip im about to tell you is the difference between making
this strategy profitable or making a money loser.
Where this strategy has its faults is when the market is moving sideways. For almost
all trading strategies when the markets is moving sideways it s a lot harder to predict.
So as example here, the price goes below the lower Bollinger band, and the RSI is below
25, but the price just keeps on dropping. So if you entered here, you would have an
absolute massive loss. So now im going to show you a nice little
trick, so you know before hand before these huge price movement even happen.
So in this example notice how skinny the Bollinger bands are at this point in time, they are
very close together, and there is barely any price movement, and the market is moving sideways.
You can also see that the RSI is being very tame and staying in between the purple rectangle
and not going above or below the major points we made before. This alone, should immediately
raise a huge red flag. Most times when the market is like this for
a while, when the price does break in a certain direction, it goes in that direction with
huge amounts of momentum. So in these types of examples, you never want
to trade trying to catch a falling knife when the price starts to act like this.
Let me show you another strategy we can use, to help solve this, that works like absolute
magic. Here you can see the price starts to drop
to the lower Bollinger band and then reverses. The next time it comes down, it makes a new
lower lower from the previous low, but something interesting is happening. The RSI made a higher
lower. So we have price making a lower low, but the
RSI is making a higher low. This right here, is called divergence and is an absolute great
sign to enter a trade, especially if rsi was previously below 25, and the price went below
the lower Bollinger band. If this happens, there s an extremely great
chance the price will reverse and make a new higher high.
I just showed you how to pair Bollinger bands with RSI and make it a profitable trading
strategy. All I ask for in return is if you can take 2 seconds out of your day and like
this video. You should also watch my other video where
I go over a MACD strategy which gets an 86% win rate, which is absolutely insane when
it comes to trading. So go check that out, and ill see you guys
next time.