RSI indicator compares the average of up and down closes for a specific period of time. Other confirming indicators might likely be used by the trader, such looking for resistance to be broken; this is illustrated in the chart above of Wal-Mart stock. I noticed in the two bolinger band was shown in 1hr time frame can they be used in dailey chart. When divergence begins to show up after a good directional move, this is a very strong indication that a turning point is near. For calculation Downward Price Changes are taken as positive values.
Relative Strength Index (RSI)
With it Bollinger Bands continue to widen as volatility rises. But it is not always straight forward: Bollinger Bands alone are not able to identify continuation and reversal patterns and require support from other indicators, such as often RSI, ADX or MACD — in general all types indicators that highlight markets from a different than volatility and trend prospective momentum, volume, market strength, divergence etc. Trend reversal patterns with Bollinger Bands As a rule, a candle closing outside Bollinger Bands followed later by a candle closing inside the Bollinger Bands serves as an early signal of forming trend reversal.
Since long aggressive trend develop not that often, there will be on general more reversals than continuation cases, still only filter signals form other indicators may help to spot true and false market tops and bottoms. Speaking of the last, Bollinger Bands are also capable of aiding double top and double bottom pattern recognition and trading. With Bollinger Bands it occurs when the following sequence take place: In fact, a very conservative trading approach requires price to cross and close on the other side of Bollinger Bands middle line before the trend change is confirmed.
This Simple Moving Average SMA is by itself a widely used stand alone indicator, which help Forex traders identify prevailing trends and confirm trading signals. The trademark is registered for "Financial analysis and research services".
Great Job, but could you put a file link for us to free download these indicators int our MT4, to work on them live trading. Another well known approach is to use 2 sets of Bollinger bands: Bollinger bands 20, 2 and Bollinger bands 20, 1 together on one chart. What it does, it creates a set of channels, the borders of which can be effectively used to gauge the strength of a trend. Red patch - a strong downtrend is clearly visible in the red highlighted area as price moves in between the bands 20, 1 and 20, 2.
Yellow patch - price returns back inside the BB 20, 1 - no trend. Green patch - a strong uptrend, followed by a tall bullish candle - an acceleration of a trend, which soon pauses - price retraces back inside the BB 20, 1. You'll be able to find it here: I had seen several strategies and explanations before but, until reading your explanation the light never came on about how useful Bollinger Bands are.
Thank you very much!!! However, once RSI advances above 70 it is not yet a signal for an immediate Selling, since RSI may stay in overbought area for a long-long time. In fact, when a strong uptrend develops, readings above 70 are just a beginning of a great upward move; an opposite is true for a downtrend and readings below Opposite true for an oversold RSI: Forex traders also use 50 level of the RSI indicator, which separates buying forces from selling forces on the market.
RSI indicator has got another handy feature: Forex traders use RSI to draw trend lines. While RSI's trend line stays intact, it confirms that a trend holds well. With RSI trend lines Forex traders are able to receive a much earlier warning about upcoming trend changes since RSI trend lines witness a breakout few candles earlier than chart trend lines.
RSI trend lines are especially useful on large time frames. When RSI approaches 70 traders watch for a bearish divergence, which occur when actual RSI readings begin to decline while prices continue climbing up. RSI Divergence suggests that a current momentum is over and traders should look to protect their profits and be ready to trade in the opposite direction.
The best way to learn about any indicators is to read original works of their creators. Therefore, let's turn to the book where J. Welles Wilder tells about his research on RSI indicator:. Failure swings above 70 or below 30 are very strong indications of a market reversal. Although divergence does not occur at every turning point, it does occur at most significant turning points.
When divergence begins to show up after a good directional move, this is a very strong indication that a turning point is near. Divergence is the single most indicative characteristic of the Relative Strength Index.
For calculation Downward Price Changes are taken as positive values. Adding to the subject: RSI is also known to form patterns, such as wedges, triangles, double tops and bottoms, head and shoulders etc. Daily charts are perfect to watch these patterns.
RSI breakouts from own patterns often happen days earlier than price breakouts on the charts, providing an invaluable information to a trader.
The advantage a longer default RSI is that it uses a longer time period and thus produces less false signals, however, it will lag more. The shorter period RSI will give the less of a lag when it comes to identifying important turning points. At times 6 RSI will lead, but other times it'll go together with 14 RSI, which allows to distinguish stronger signals and filter out least important ones.
I don't think so. A Bullish divergence is formed when RSI is at the bottom and begins to rise, while price keeps making new lows.