Bollinger Bands and RSI (30 min.)

Here’s a simple strategy drawn up by our fellow trader: using the basic indicators in such a restrictive way that only few signals are generated, making them more effective.

It’s all about seeking the overbought and oversold moments.

Set-up

We set the chart on 5M time interval.

In the price chart we install the following indicators:

  1. 2 x simple moving average (SMA), one set at 100 (here: yellow) and the other at 50 (here: purple).
  2. Bollinger Band set at 20 and 2.5 (not the default/standard settings).
  3. The RSI set with the period of 3 and levels 10 and 90.
  4. ForexMTN on the RSI chart for better visualization (optional).

Usage

CALL – if 100 SMA is below 50 SMA (a signal of an upward trend), and the price chart is below those two lines. Also, if the signal candle’s chart closes below the scope of Bollinger Bands. To confirm the signal we check the RSI (there’s a blue signal if it’s oversold). If the above is true, we enter the call option on the next candle for 30 minutes.

PUT – if 100 SMA is above 50 SMA (a signal of a downward trend), and the price chart is above those two lines.. Also, if the signal candle’s chart closes above the scope of Bollinger Bands. To confirm the signal we check the RSI (there’s a red signal if it’s overbought). If the above is true, we enter the put option on the next candle for 30 minutes.

Examples

PUT option (click to enlarge):

Additional remarks

If we want more signals, we can test this strategy on 1M chart and set the expiry date at 15 minutes. Bear in mind that the right RSI level is crucial.