Do RSI and Bollinger bands really work? // RSI indicator strategy, Bollinger bands trading strategy
welcome to looking at the markets with David Moadel
Today we're going to talk about do RSI and Bollinger bands really
work
so let's talk about that
bollinger bands vs-rs I as a swing trader
I use the 14 . RSI and that stands for relative strength index with over 70
being overbought
I consider over 70 to be over box and under 30 being oversold and bollinger
bands at the standard settings with the candlestick piercing the top band as
overbought and the candlestick piercing the bottom band is oversold
in other words if i use the daily charts
so if a particular candlestick Pierce's up above the top
bollinger band then i would consider that to be overbought or expensive and
if it Pierce's below the lower Bollinger Band
then i would consider that to be oversold or relatively cheap or
inexpensive Bollinger Bands tend to give a lot more overbought and oversold
signals then RSI so if you're looking to trade more often then you might want to
use Bollinger Bands if you want to be a little more careful little more
conservative trade less off and then you might want to look at the RSI instead of
that unlike RSI bollinger bands can contract or squeeze indicating that a
big move or a breakout is likely to happen so that might be an advantage of
bollinger bands over RS I
here's a word of caution though and we're going to talk more about this
don't count on bollinger bands or RSI don't count on either one
during major news events such as bricks it
that was a recent one earnings reports and I'm talking about right before the
earnings report fed announcements and so on so we'll look at some examples and
some features of bollinger bands and RSI again use daily charts so each of these
candlesticks represents one trading day and this is for SP why the etf that
tracks the S&P 500 and I like to trade this one a lot
so let's look at the Bollinger Bands first as we can see the Bollinger Bands
work very well sometimes
check it out it bounced right off of this one so if you bought right here
right when it pierced the lower Bollinger Band you would have made some
money if you bought right here would have made some money and what some
people like to do is they might buy at the lower band and then it's as soon as
it hits the top band they might sell
okay now remember we pointed out that I don't you don't want to count on these
indicators working during major news events upcoming major news events
here's a perfect example of this was the brexit scare
I remember that that was recent and during these news events upcoming major
events
the pride of the candlestick or the price action
oftentimes we'll just break right through the bollinger bands and so the
band's become I I don't want to say meaningless but they become less useful
ok because it'll just be us right it'll just break right through them
alright so be aware of that
that's a good example of not counting on bollinger bands or RSI for that matter
working because you've got some major news event coming right up soon
now notice that on the RSI you get overbought and oversold signals less
often there are fewer of them on the RSI you got one here you got one here you
got one here but they're long periods of time when you don't get any overbought
or oversold signals we finally get you finally get an oversold signal right
here if you look at this whole chart here there's only one oversold signal
you would only buy one time if you were to use only the RSI and if that's the
way you want to invest then that's fine if you're the type of an trader or
investor who wants to wait for extremes and you don't mind waiting for months at
a time before making a trade
then the 14 . RS i might be for you if you want more
yeah if you want your overbought and oversold signals to happen more often
then
Bollinger Bands might be for you because you can see you've got a signal here got
a signal here and this one worked out quite well actually bounced right off of
it
you got a signal here here here here here and here so it depends on your
trading time frame and help patient you want to be with your trades
let's look at apple
we see some features here bollinger bands we pointed out earlier that
bollinger bands have a nice feature that RSI does not have which is that
bollinger bands can squeeze when the distance between the two that you have
the top and the bottom top and bottom band get closer together then that means
that there's been a lot of sideways or contained you know range action
you know it's a lot of sideways movement recently and that means that you might
expect a break out to the upside or downside but you can expect more
movement fairly soon oftentimes here's a perfect example with apple of a
Bollinger Band squeeze right here
they contracted followed by a big break out you know and and that doesn't always
work
yeah you can have a squeeze not followed by a breakout
but that is a possibility here's an example of an earnings report and as you
can see it was a big mess for apple on that day in late late april i believe it
was a 26th of april or there abouts and again you know it you can't count on
bollinger bands working on those days
it hit it it pierced the bottom band and you might think well I should buy here
because it's relatively inexpensive but that was right before in earnings report
which was a big mess
it could have gone up very sharply but it went down very sharply and so that's
why I don't count on these types of indicators working when there's a news
event or earnings report coming up now we also notice before i read this notice
that on the RSI the price can stay and over
so oversold territory for a while
just because it goes it goes into oversold
territory doesn't mean it's going to come right back out
ok you have to be patient with these things that can also go into overbought
territory for a long time now I wrote here a note that some traders will buy
when the RSI curls up out of over out of the Oversoul region and that that's a
good way to do it
you might not want to buy right when it pierces the Oversoul region
you may not be made you might want to wait until it's been in the Oversoul
region and then the RSI starts curling up out of it back into the middle
that's a good place to buy often times and as you can see it worked perfectly
here
it went up after that here's another example gld which represents the price
of gold attracts gold prices and on this one the Bollinger Bands worked quite
well not every time but it seems to have worked pretty well here you can see if
you would shorted here or bought puts here you would have
boom you would have made some money and if you would wait even longer you would
have made more money and then you could have a sold your puts or covered your
short position and then you could bought gld or but calls when it hit the bottom
band here and you would've made a little bit of money and then you could have
bought here and you would have made some money could about here
what made some money could have sold here or shorted or bought puts here you
would have done
ok would have done well and definitely hear it pierced right about here and it
went a little bit above but if you just hold on
you would have done quite well if you had a lot puts here or just shorted gld
out right
ok or here same thing if you had bought puts here or shorted gld you would have
done well it doesn't work every time
as you can see sometimes
it will pierce the top band and then just keep going
but even here if you had bought puts here and just waited a little bit and
I'm assuming
see here's the thing if you had bought weekly puts expiring in a few days
right here you might not have done so well but if you had bought long-term
puts going five or six months out like i like to do and then just held on see it
went down
so you would have done better now let's look at the RSI as you can see very few
overbought or oversold signals are given by the RSI here
there's one here ok but from let's say here all the way to here for almost you
know like three fourths of this entire period of time here
if you had just relied on overbought oversold using 30 and 70 r17 30 on the
RSI you would have gone for a long time doing nothing which is okay it is not
really nothing wrong with that if you have the patience for that
so what's the takeaway
well there are several here I believe bollinger bands and RSI work fairly well
I'll be it not perfectly as recommendations or suggestions of when
to buy or sell
now if you're thinking about buying a stock but you're not sure what's a cheap
or expensive price for that stock
bollinger bands and RSI are good place to start
ok so if you're looking at a stock or an ETF or whatever
for the first time and you don't know you know what's what's considered cheap
what's considered expensive you know when do I by when do I sell if you just
have no clue what all the first thing you want to do is really research that
stock or ETF or currency or whatever
you want to research it thoroughly get to know it very well but then if you're
not sure what a good prices what's cheap was expensive
bollinger bands and rs I can be a really great place to start
they can give you guidelines or recommendations and that's all that
that's all they are are just guidelines or recommendations
they're not commands to buy or sell
and finally i don't recommend relying on them before upcoming news events or
earnings reports
well if you'd like more help with this I can certainly assist you
my name is David Modell and if you want to contact me we can discuss finance
options
stocks indicators like we talked about today and we can make a trading plan or
investing plan for you so you can be more successful you can contact me
anytime
my email address is David Modell @ gmail.com and by the way if you like my
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I'm always glad to hear from you thanks a lot and hope to talk to you soon
yeah