Home / NEWS LINE / How do I create a trading strategy with Bollinger Bands® and the Relative Strength Indicator (RSI)?

How do I create a trading strategy with Bollinger Bands® and the Relative Strength Indicator (RSI)?

A:

Bollinger Ties are one of the most common volatility indicators used in technical stock customer base analysis. The bands plot three separate lines on a price plan, with the outer two representing a two-standard deviation range from a center figure calculated using a moving average. Because the standard deviations add to or narrow dynamically based on the security’s trading range, Bollinger Bodies can be a very flexible and adaptable tool. It is very common to combine Bollinger Affiliates with another famous indicator, the Relative Strength Index, or RSI, to labourers confirm a trend’s relative strength.

The RSI is a momentum indicator that the same class withs the number of days a security closes up versus closing down on top of a period of time. These values are then plotted on a range from zero to 100, with overbought safe keepings typically expected when the RSI returns a value over 70 and oversold refuges expected when the value is under 30.

When the two are combined, the RSI acts to either stand by or dispel possible price trends. For example, if a stock price reaches the more elevated band of a Bollinger Band price channel and, at the same time, the RSI infer froms 70+, the trader could make the interpretation that the security is overbought. He or she could then shop the stock, buy a put or sell covered calls.

Suppose instead the price table shows trading is reaching the lower Bollinger Band and the RSI is not under 30. In this holder, the RSI is telling the investor the security may not be oversold as the Bollinger Bands seem to register. The trader would not immediately enter buy calls or purchase extra trade in since the downtrend could continue. If the RSI is high enough, the trader may flat consider a sell.

Check Also

DoubleLine’s Gundlach Says S&P 500 Likely to Go Below Feb 2018 Lows

Jeffrey Gundlach, chief big cheese of DoubleLine Capital, said Tuesday on an investor webcast that …

Leave a Reply

Your email address will not be published. Required fields are marked *