Bollinger bands and RSI pair trading

Today, we're diving into the powerful combination of Bollinger Bands and RSI – often referred to as the golden pair of trading indicators. In this video, we'll explore how these indicators can help you identify overbought and oversold conditions, market volatility, and overall market strength.

Bollinger Bands:

To get started, we'll make some modifications to our Bollinger Band and RSI settings to optimize our trading strategy.

Bollinger Band Modifications:

1. Change the period of the middle line (SMA) from 20 to 30.
2. Keep the standard deviation at two.
3. Remove or deactivate the channel fill background color for better visibility.
4. Change the color of all three lines to dark blue for improved clarity.
5. Save these modifications.

RSI Modifications:

1. Keep the period of the moving average at 14.
2. Change the RSI line color to dark blue for better visibility.
3. Adjust the overbought and oversold levels to 70 and 30, respectively.
4. Save these changes.

Now that we've optimized our indicators let's dive into two primary trading strategies based on the concept of mean reversion using Bollinger Bands and RSI.

Mean Reversion Trading Strategies:

1. Bollinger Band and RSI Buy Signal:

When we're anticipating a price reversal from a downward stretch, we wait for specific conditions to enter a buy trade:

• Price should close outside the lower Bollinger Band with a bearish candle.
• RSI should hit a level of at least 25 or less.
• Wait for the price to return inside the lower band and close with a bullish candle.   
  

For entry, place your stop loss below the low of the bearish candle or 2 ATR (Average True Range) below the lower Bollinger Band. Take profit levels can be based on personal preferences, such as using the middle line as a dynamic resistance or employing price action analysis.

2. Bollinger Band and RSI Sell Signal:

When we anticipate a price reversal from an upward stretch, we look for specific conditions to enter a sell trade:

• Price should close outside the upper Bollinger Band with a bullish candle.
• RSI should hit a level of at least 75 or more.
• Wait for the price to return inside the upper band and close with a bearish candle.

For exit, place your stop loss above the high of the bullish candle or 2 ATR above the upper Bollinger Band.

Bullish and Bearish Divergence Strategy:

Another trading approach is to identify bullish and bearish divergences between price and RSI.

• Bullish Divergence: When price makes a lower low, but RSI makes a higher low. This signals strength, and you can enter a trade accordingly.

• Bearish Divergence: When price makes a higher high, but RSI makes a lower high. This indicates weakness, and you can consider exiting the trade.

Remember, you can use additional tools like crossover indicators for more precise entry points.

In summary, these strategies are based on the concept of mean reversion, where price tends to revert to its average, represented by the middle line of the Bollinger Bands. By combining Bollinger Bands and RSI, you can make more informed trading decisions and enhance your trading success. Thanks for watching, and happy trading! If you found this video helpful, don't forget to like, subscribe, and leave your comments. Take care, and see you in the next video.

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