Low-Risk “Forex & Stock Market” Trading With Bollinger Bands and RSI Trendline Breaks. This is one of the most profitable and reliable setup strategies for scalping, intraday, and swing trading for any markets.
Bollinger band and RSI are very popular indicators, traders have mastered how they can help market analysis. But before going into the specific discussion, let’s take a look at the flashback about the two indicators.
Bollinger Bands is a technical indicator that is used to measure volatility and determine the direction of the trend of price movements. This indicator can also be used to find overbought and oversold conditions.
Bollinger bands work especially well in sideways markets. In this condition, Bollinger bands form horizontal or flat lines, and price movements often bounce on the upper and lower bands. If you find this condition, the Bollinger band is good enough to determine to Buy or Sell by looking at the price of the Bollinger band.
Like its function, to measure volatility, the higher the market volatility, the two bands will expand, while in low market volatility, both bands will be seen to squeeze the price.
At an advanced level, the use of Bollinger bands is developed with a trading strategy called “BB-RSI Trendline Breaks“.
Connecting rising swing lows of the RSI in an uptrend or lower swing highs in a downtrend, traders can find trading opportunities with strong risk to reward setups.
The BASE rules of this technique are straightforward, we only need to connect the most recent RSI peaks or valleys with a trend line and we search for a breakout of the trend line, which will warn us that the market has lost its steam and the prevailing trend has lost its momentum.
- Download “TraderVersity-BBRSI(TrendlineBreaks)” (Zip/RAR File).
- Copy mq4 and ex4 files to your Metatrader Directory …/experts/indicators/
- Copy the “TraderVersity-BBRSI(TrendlineBreaks).tpl” file (template) to your Metatrader Directory …/templates /
- Start or restart your Metatrader Client.
- Select Chart and Timeframe where you want to test your forex system.
- Right-click on your trading chart and hover on “Template”.
- Move right to select “TraderVersity-BBRSI(TrendlineBreaks)” trading system and strategy.
- You will see the “TraderVersity-BBRSI(TrendlineBreaks)” is available on your Chart.
When seeking to open buy positions, observe indicator readings as follows:
- 1st. Prices falling within a trading range.
- 2nd. While the price must tag the lower Bollinger Bands.
- 3rd. Wait for a bar that closes higher than open.
- 4th. Open BUY will only be done if the RSI Oscillator breaks the downtrend line above the the 30 levels as an oversold signal.
- Place a stop loss below the lower band line.
- Target profit on the Middle band is much safer, but you may try target profit when the price approaches the upper band line.
- Pay attention to the candlestick pattern, if there is a strong indication of trend continuation, be patient and wait for a reversal signal even if the RSI value is below the 30 levels. That is a sign that the market is being filled with sellers. So it is quite dangerous if open BUY is in a strong downtrend
When seeking to open sell positions, observe indicator readings as follows:
- 1st. Prices rising within a trading range.
- 2nd. Price must tag the upper Bollinger Band.
- 3rd. Wait for a bar that closes lower than open.
- 4th. Open SELL will only be done if the RSI Oscillator breaks the uptrend line below the the 70 levels as an overbought signal.
- Place a stop loss above the upper band line.
- Target profit on the Middle band is much safer, but you may try target profit when the price approaches the lower band line.
- Pay attention to the candlestick pattern, if there is a strong indication of trend continuation, be patient and wait for a reversal signal even if the RSI value is above the 70 levels. That is a sign that the market is being filled with buyers. So it is quite dangerous if open SELL is in a strong uptrend.
If the trader has patience, this low risk trading strategy is a very good and works well in any market conditions.
However, no strategy gives a 100% profitability guarantee at all times. We suggest following money and trade management rules when trading with these strategies besides practicing these at demo trading before applying them on actual trading.