#5. Combine the RSI indicator with Bollinger Bands
If you pay a little attention, you will see that RSI and Bollinger Bands are two very interesting indicators:
• RSI is a momentum indicator, it is designed to stay ahead of the market and give a signal about something that is about to happen in the future.
Bollinger Bands are the opposite because Bollinger Bands are a lagging indicator, meaning they follow the price. It provides confirmation signals after the price has run.
• With Bollinger Bands, most of the time the price is always between the upper and lower bands. In addition, the two Bollinger Bands act as dynamic support and resistance. Therefore, the most basic trading option with Bollinger Bands is to SELL when the price touches the upper band and BUY when the price touches the lower Band. As for RSI, the simplest sign and also the characteristic sign of RSI is OVERBUYING and OVERSELLING.
So what is the idea for combining RSI and Bollinger Bands?
Very simple, you need the following conditions:
Wait for RSI to enter the OVERBUY or OVERSELL zone.
Wait for the moment the price touches the upper Band (or lower Band).
Please see the following example:
It's easy to see, if you only use Bollinger Bands, you will encounter countless times when the price touches the bands and if you keep placing orders, your probability of winning will be very low. So when combined with the RSI indicator, it will act as a filter to help clear trading signals with a significantly higher probability of winning.
However, you should note that if such a simple combination can yield a highly effective trading method, then I am afraid you will be disappointed.
You should remember that in a strong trending market, the price can remain OVERBUYED or OVERSOLD for a very long time (up to several months), the same thing happens with Bollinger Bands.
Therefore, the prerequisite that you need to remember is to IDENTIFY AND TRADE WITH THE BIG TREND!
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