- 1 The idea of Bollinger Band and RSI strategy
- 2 Setting up Bollinger Bands and RSI indicators on IQ Option
- 3 Trading long-lasting positions using Bollinger Bands and RSI strategy on IQ Option
- 4 Pros and Cons of Bollinger Band and RSI Strategy 📈📉
- 5 What to remember when using Bollinger Bands and RSI strategy on IQ Option
- 6 Q&A: Bollinger Band and RSI Strategy 💡
- 7 GENERAL RISK WARNING
IQ Option provides you with a handful of indicators to choose from when trading. Bollinger Band and RSI strategy consist of two of the most popular indicators. When combined, these two indicators for a formidable pair that can help you make more winning trades when trading long positions.
This guide will teach you just how to use them on the IQ Option platform.
The idea of Bollinger Band and RSI strategy
Is Bollinger Bands a good indicator?
The Bollinger Band is a classic trend indicator. The formula for this indicator was developed long ago by John Bollinger. The indicator itself consists of 3 lines: the middle line and the upper and lower bands. The middle line is a moving average, by default 20-period. The upper and lower lines are offset from this mean on a standard deviation basis. In this way, the indicator not only shows the direction of the market but also provides us with information on the current volatility of the asset.
The indicator is widely used in chart analysis and in the construction of automated investment strategies.
What indicator works well with Bollinger Bands?
The Bollinger Band and RSI strategy is a strategy that also adds the Relative Strength Index to the band. The RSI is an oscillator and on its own is classified as a momentum indicator as well as an indicator indicating oversold and overbought market zones. The combination is therefore very apt. It is always good to pair trend indicators with momentum indicators.
When trading short interval candles, it’s quite difficult to analyze the true price direction. There are too many price fluctuations to deal with. But if you’re analyzing long interval candles (5 minutes or more) price movements are easier to identify and follow. Combine this with Bollinger Band and RSI strategy, you stand a good chance of making winning trades.
Bollinger Bands RSI a magical combo
When trading Bollinger Bands alongside RSI, you will be looking at two things. The first is the price at the upper or lower bands. The second is whether there is clear trend on the RSI indicator.
If you don’t understand how to trade using the RSI indicator, Using RSI Indicator to Profit on IQ Option is a guide you should read.
The Guide to Trading with Bollinger Bands on IQ Option will help you get started with the B-Band indicator.
Now back to using these two in an example.
Suppose the price is at the upper band, you would expect that the RSI is near or has even crossed the overbought line. It is important that a clear upward trend can be traced on the RSI, the line of which has not yet been broken.
This is what you’re looking for.
Setting up Bollinger Bands and RSI indicators on IQ Option
On your Japanese candles chart, click on the indicators feature. Click on “Popular” and start with the Bollinger Bands indicator. Once selected, change the period to 20 and let the deviation remain at 2.0. Click apply.
Next, set up the RSI indicator. Let the period remain 14 and click apply.
Trading long-lasting positions using Bollinger Bands and RSI strategy on IQ Option
Now with your indicators set, how do you use them to trade on IQ Option? You should look at areas where the prices start ranging. The gap between the bands narrows. However, the RSI indicator shows a trend. At this point, enter a long-lasting trading position. With Bollinger Bands and RSI strategy when I say long-lasting, I mean the duration of the position. This long-lasting will always be in relation to the time frame of the chart on which I am observing, e.g. for a 1-minute chart I want my trades to last at least 10 minutes.
Entering a long-lasting sell position on IQ Option
Let’s use the chart below. You’ll notice that the prices are falling within a narrow range. The gap between the Bollinger bands is also narrow. However, looking at the RSI, there’s a bearish trend where the indicator falls below the 20 line. This is a signal of an impending downtrend. At this point, you should enter a long-lasting sell position.
In this chart, I’m using 1-minute interval candles. The long-lasting position opened should last at least 10 minutes to ensure that the trade ends in the money.
Pros and Cons of Bollinger Band and RSI Strategy 📈📉
- ✅ Pros:
- Combines two popular and reliable indicators for a more accurate analysis.
- Effective in various markets and financial instruments, such as stocks and forex.
- Helps identify potential trend reversals and market volatility.
- ❌ Cons:
- Shorter timeframes can generate false signals, reducing accuracy.
- Requires a good understanding of both Bollinger Bands and RSI indicators.
- Not suitable for short-term trading or scalping strategies.
|A trend indicator that shows the direction and volatility of the market using a moving average and upper and lower bands.
|Relative Strength Index (RSI)
|An oscillator that measures the strength of a market trend and identifies overbought and oversold zones.
Entering a long buy position on IQ Option
In the chat below the gap between the Bollinger Bands starts to narrow at the end of a downtrend. The prices seemingly drop at some point. However, the RSI indicator has a bullish trend. The line moves towards the 80 line signaling that the bulls are suddenly stepping in. At this point, you should enter a long-lasting buy position.
If you’re using 1-minute candles, your long buy position should last at least 10 minutes.
What to remember when using Bollinger Bands and RSI strategy on IQ Option
Bollinger Bands and RSI indicators should be used to trade long-lasting positions only. If you’re using 5-minute candles, you should enter trades lasting at least 30 minutes. This will ensure that your trades will not be affected by price fluctuations that occur when the RSI trend finally ends and the indicator moves along the prices.
This indicator pair works well in different markets. However, I’d recommend using Bollinger Band and RSI strategy in currency pairs markets that are likely to be affected by a news item. Before news items are released, prices tend to consolidate before adopting a sharp trend. It’s during this price consolidation that you’re likely to see RSI trend.
Always enter a long-lasting position and wait for it to end. Avoid trading the price fluctuations that will occur during the trading session.
Q&A: Bollinger Band and RSI Strategy 💡
- Q: Can the Bollinger Band and RSI strategy be applied to all financial instruments?
- A: Yes, it can be applied to various financial instruments, such as stocks, forex, commodities, and cryptocurrencies.
- Q: How can I avoid false signals when using this strategy?
- A: Use longer timeframes (5 minutes or more) and avoid trading during high market volatility or news releases.
- Q: Can I use this strategy for short-term trading?
- A: This strategy is not ideal for short-term trading or scalping, as it is designed for longer-lasting positions.
- Q: Do I need to be an expert to use the Bollinger Band and RSI strategy?
- A: While expertise is not required, having a good understanding of both Bollinger Bands and RSI indicators is essential for using this strategy effectively.
- Q: What other indicators can be combined with Bollinger Bands and RSI for better results?
- A: You can consider adding support and resistance levels, moving averages, or MACD for additional confirmation signals.
GENERAL RISK WARNING
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