RSI with Bollinger

This is a guide of the trading strategy. For a guide on how to read the graphs on the analysis page, click here.

This strategy is an extension of the RSI Overbought and Oversold strategy. RSI indicators perform well when the market is ranging and not so well when the market is trending. In order to determine if the market is trending or ranging, the Bollinger Bands is used.

When the market is ranging, the difference between the Bollinger upper and lower bands is small. We call this difference between the upper and lower band the Bollinger Spread. When the market is trending, the Bollinger Spread widens.

The RSI indicator is set to have a window of 14 periods. The Bollinger upper and lower bands are calculated using a window of 20 periods. The Bollinger Spread is simple the difference between the upper and lower band. The Bollinger Spread Mean and Standard Deviation is the average and standard deviation of the Bollinger Spread for 1 year historical period.

A BUY entry signal is generated when:

  • The RSI is < 30, indicating oversold.
  • The Bollinger Spread is less than 2 standard deviation from the Bollinger Spread Mean. This indicates a ranging market.
  • Exit when RSI > 70, indicating overbought.

A SELL entry signal is generated when:

  • The RSI is < 30, indicating overbought.
  • The Bollinger Spread is less than 2 standard deviation from the Bollinger Spread Mean. This indicates a ranging market.
  • Exit when RSI < 30, indicating oversold.