hi traders after the two videos we've previously made where we back tested the bollinger bands and rsi indicators 100 times we've received many requests from subscribers asking us to combine the two indicators to come up with a solid strategy well that's what we're going to do today so if you're using bollinger bands and relative strength index rsi or you're just looking for a powerful strategy to trade forex stocks or cryptocurrency then this video is what you're looking for make sure to watch the video till the end to see if it's a successful strategy or not and whether you should use the bollinger bands in rsi to trade forex or other financial markets before we continue if you're watching this for the first time make sure to subscribe to the channel so you won't miss any of our future updates and give the video a thumbs up to help the channel grow without any further ado let's get into it [Music] the strategy of using the bollinger bands in rsi is extremely popular among traders these days before you make a buy or sell decision you can plot on these two indicators to provide additional confirmation or disk confirmation all it takes is one minute and you would have generated extra insights by using this strategy but would these indicators be enough to be a profitable trader putting on different thinking caps can provide additional confirmation which is commonly known as confluence this can help better time your entry or exit points before we continue it's important to mention that the relative strength index rsi is a leading indicator and bollinger bands is a lagging one a leading indicator means it's designed to precede future price movements it gives an early warning signal before a trend reversal occurs well in general the challenge of using leading indicators is that they tend to be less reliable and can even lead to false signals on the other hand lagging indicators move behind the price and provide delayed feedback to the trader a moving average is an example of a lagging indicator if the price is dropping and then comes back up the moving average may continue going higher after the price does while the lagging indicator is more accurate the bad news is you're probably late to the party when a lagging indicator shows up keeping these two simple concepts in mind you might think that the best way is to use both of them and that endorses the choice of bollinger bands and the rsi strategy we are testing today so would that make our strategy successful we'll know the answer in a bit bollinger bands were developed by john bollinger in the 1980s and are commonly used to measure the volatility of an asset here is what bollinger bands look like on gold there are three components to bollinger the first one is just a simple 20-day moving average which is represented by the middle band the second and third are the upper and lower bands that are two standard deviations away from the 20-day simple moving average in general when the bands tighten during a period of low volatility it raises the likelihood of a sharp price move in either direction this may begin a trending move watch out for a false move in the opposite direction which reverses before the proper trend begins other than that when the bands are separated by an unusually large amount volatility increases and any existing trend may be ending prices tend to bounce with the band's envelope touching one band then moving to the other band you can use these swings to help identify potential profit targets for example if a price bounces off the lower band and then crosses above the moving average the upper band then becomes the profit target a strong trend continuation can be expected when the price moves out of the bands however if prices move immediately back inside the band then the suggested strength is negated now let's look at the relative strength indicator rsi is a momentum oscillator that measures the speed and change of price movement the rsi oscillates between 0 and 100 where anything above 70 traditionally represents overbought and anything below 30 represents oversold in an uptrend or bull market the rsi tends to remain in the 40 to 90 range with the 40 to 50 zone acting as support during a downtrend or bear market the rsi would stay between the 10 to 60 range with the 50 to 60 zone acting as resistance these ranges will vary depending on the rsi settings and the strength of the currency pair now let's combine both the bollinger bands and rsi into a single chart the strategy of using bollinger bands and rsi is not that complicated we just need to watch for moments when the price hits the lower band and rsi gets to the oversold region below 30. this would be a good entry for a buy trade let's look at an example on the chart this is the 15 minutes aussie dollar chart we can see that the price has hit the bollinger lower line and closed below it the rsi value is below 30 so it's time to go long we can place a buy stop order a few pips above the price level the stop loss should be positioned below the most recent swing low or 200 simple moving average we can aim for at least a 1 to 1.3 risk to reward ratio this trait is successful now let's look at a short trade this is the pound yen daily chart we can see here that the price hit the upper bollinger bands and the rsi value is above 70. according to our strategy we should go short with a sales stop order positioned a few pips below the actual price level the stop loss would be positioned above the most recent key level that's another successful trade but wait we can see here that the price is giving us a sell signal but it would be a losing trade so the question is why well if we look at the price action pattern we can understand the reasons there are two reasons remember that the trend in forex has a series of phases it usually starts with a spike followed by a reversal or a correction then a price channel will form as the trend momentum decreases the last phase would be the consolidation known as a sideways market one of the reasons why our trade was a losing one is the fact that we entered against the trend during the reversal stage the other reason is the size and form of the candles we can see candles with long tails and small bodies that means that the market is uncertain and this is probably the worst time to enter the market so is this strategy successful i would say yes but it has to be combined with price action knowledge and the chart should be read horizontally as well to make this strategy more profitable and get rid of the maximum number of false signals we can rely on momentum trading strategies i've recently made a video on this topic the link would appear now on the screen sometimes entering the market after the formation of the trend is easier than anticipating a trend using technical indicators alone a 40 pip solid setup is better than a 400 pips risky one for example we could have gone long here as the price hit the lower bollinger band and the rsi is below 30. that would be a risky trade as we are trading against a tremendous downward breakout recorded here the best option in my opinion is to wait a little bit for confirmation we can notice that the market has made a higher high and higher low and many bullish engulfing patterns are recorded together with two series of the three white soldiers which is a bullish candlestick pattern used to predict the reversal of the current downtrend in a pricing chart that would be enough to go long and guess what that's an easy 900 pips trade imagine before we continue don't forget to check out the other videos on this channel especially the one where we back tested a candlestick pattern strategy 100 times feel free to submit your strategy for back testing using this link and don't forget the thumbs up which encourages us to make more videos in the future do you