Bollinger bands and RSI combination indicator
John Bollinger developed Bollinger bands forex indicator, bollinger bands forex indicator is used to determine relative price levels and volatility over a certain period of time. Envelopes Bollinger bands are attached with two basic deviations away from simple moving average indicator. Because the volatility was measured by standard deviation. The bollinger bands contract during low quiet market and widen during volatile market. Bollinger bands indicator consists with moving average standard deviation bands. The third center line in the bollinger bands forex indicator is the simple moving average line. For short term trading 10 day moving average setting is recommended by John bollinger, for long term trading 50 day moving average and for intermediate trading 20 days moving average is recommended.
Sell and buy signals alone did not generated by bollinger bands, you should be used with other indicator like MACD or RSI relative strength index indicator forex. When Forex price reaches one of the bollinger bands line, it could indicate one of two signals. it could indicate a trend reversal move or it could indicate a trend continuation. So, the bollinger bands do not determines buy and sell signals.
If bollinger bands forex indicator combined with other indicator like RSi relative strength index forex indicator, this combination become powerful. RSI indicator is used to give oversold and overbought signals. When Relative strength index RSi indicator forex is above 30 and market price touches the lower bollinger bands , we have an trend continuation signal. And when Relative strength index RSI is move below 70 and market price reaches the upper bollinger bands , we have trend continuation signals.
If we have a situation where RSI relative strength index indicator forex is above 70 and market price reaches the upper bands we have trend reversal signal. On the other hand, if RSI indicator forex is below 30 and market price reaches the lower bollinger bands indicator , we have an trend reversal signal.
Do not use two or more different forex indicators but all have the same input data. If you are using bollinger bands and RSI forex indicator , do not use MACD forex indicator too. These indicator use the same inputs. but you can try to using Money flow index indicator or On balance volume indicator forex. These indicator can be applied together as trend confirmation.
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