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.