RSI and Bollinger Band Setup
RSI and Bollinger Band Setup
Tools Candlestick on Hourly Time Frame and RSI (14)
Trade Setup I just can't recollect where I read this setup. But, it is a very useful one of you apply it correctly. If you identify the stocks on which this setup works, then it is going to be very profitable. Usually, you should pick
weak stocks for this setup. Stocks which are
under performing the broader market or which are in intermediate down trend. Else you can get many false signals.
How to trade it - Look at the chart below. Bharti has been under performing the market for quite sometime now. If you look closely. The prices have crossed and closed above Bollinger band (upper) two times. On both occasions the RSI(14) was not above 70. Now, RSI is an indicator of strength and despite the price closing above the band, the RSI remains below 70 (does not exhibit strength). Hence, we then look for some sort of bearish confirmation on candlesticks (Doji, Hanging Man, Bearish Engulfing). The moment you get this confirmation, short the stock with stop loss being the highest price (of the previous two candles). In case of Bharti, in the first case we got a Doji whereas on the second case it was a variation of bearish engulfing pattern.
STOPLOSS - Stop loss is the highest price (high) of the previous two candles.
Usage - Can be used on 60 Minute time frame chart. You can use 15- Minute chart for entry.