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You want to know how to use Bollinger bands, the RSI and the MACD, which are three technical indicators widely used in the analysis of financial markets. Below, I am going to give you a brief summary of each of them and some examples of how to apply them in your trading strategy.
Bollinger bands are a volatility indicator that consists of a central moving average and two bands that lie above and below it, at a distance determined by the standard deviation. These bands expand or contract depending on market volatility, and allow us to identify possible support and resistance zones, as well as moments of breakout or continuation of the trend. Some of the most common strategies with bollinger bands are:
- Trading on the rebound of the bands: consists of buying when the price touches the lower band and selling when it touches the upper band, as long as the market is in a range and there is no clear trend.
- Trading in the breakout of the bands: consists of entering in the direction of the breakout when the price leaves the bands, which indicates an increase in volatility and a possible change in trend.
- Combine the bands with other indicators: you can use the central moving average as a trend confirmation signal, or add other indicators such as the RSI or the MACD to filter out false signals.
The RSI (Relative Strength Index) is a momentum indicator that measures the strength and change of price movements, indicating overbought and oversold conditions of the asset. The RSI ranges between 0 and 100, and it is considered overbought when the value is greater than 70 and oversold when it is less than 30. The RSI helps us detect possible turning points in the market, as well as divergences between the price and the indicator. Some of the most common strategies with the RSI are:
- Trading at the intersection of overbought and oversold levels: consists of buying when the RSI crosses the 30 level from bottom to top and selling when it crosses the 70 level from top to bottom, as long as the market is not in trend.
- Trading at the center line crossing: consists of buying when the RSI crosses the 50 level from bottom to top and selling when it crosses the same level from top to bottom, which indicates a change in trend.
- Look for divergences between the price and the RSI: this consists of identifying situations in which the price makes higher or lower highs or lows, but the RSI does the opposite, suggesting a weakness in the trend and a possible reversal.
The MACD (Moving Average Convergence Divergence) is a trend indicator that is based on the difference between two exponential moving averages of different periods, to which smoothing is applied. The MACD is made up of two lines, the MACD line and the signal line, and a histogram that represents the distance between the two. The MACD allows us to identify the direction and strength of the trend, as well as possible changes in it. Some of the most common strategies with the MACD are:
- Trading at the intersection of the MACD and signal lines: consists of buying when the MACD line crosses the signal line from bottom to top and selling when it crosses the same line from top to bottom, indicating a change in trend.
- Trading at the intersection of the MACD line with the zero level: consists of buying when the MACD line crosses the zero level from bottom to top and selling when it crosses the same level from top to bottom, which indicates a stronger trend change .
- Look for divergences between the price and the MACD: this consists of identifying situations in which the price makes higher or lower highs or lows, but the MACD does the opposite, suggesting a weakness in the trend and a possible reversal.
These are some of the ways to use Bollinger bands, RSI and MACD in your technical analysis, but remember that you should always combine them with other elements such as candle patterns, trend lines, Fibonacci levels, etc. Additionally, you must take into account the time frame in which you operate, the risk you assume and the objective you pursue. I hope this article has been useful to you and encourages you to continue learning about these and other indicators. If you want to know more, you can consult the following sources:
- [Technical Indicators (Volume I): The RSI, The MACD and The Bollinger Bands](^1^)
- [Bollinger Bands | How they work and 3 Strategies](^2^)
- [MACD and Bollinger Bands Strategy – BB MACD Tutorial](^4^).
BIBLIOGRAPHIC REFERENCES
(1) Technical Indicators (Volume I): The RSI, The MACD and The Bollinger Bands. https://blog.forocoin.net/indicadores-tecnicos-volumen-i-el-rsi-el-macd-y-las-bandas-de-bollinger/.
(2) Bollinger Bands | How they work and 3 Strategies - Admirals. https://admiralmarkets.com/es/education/articles/forex-strategy/bandas-de-bollinger.
(3) MACD and Bollinger Bands Strategy – BB MACD Tutorial. https://www.forex.in.rs/mercado/2528-2/.
(4) RSI, Bollinger Bands, MACD: borjac240 indicator — TradingView. https://es.tradingview.com/script/a8PX10Sx/.
(5) Estrategia de Bollinger Bands® y MACD - Automatic forex robots and signals. https://signal2forex.com/es/2019/09/06/Bandas-de-Bollinger-y-estrategia-MacD/.
(6) Getty Images. https://www.gettyimages.com/detail/photo/japanese-candlesticks-chart-with-trend-and-royalty-free-image/1199049063.
