Short answer
In a sideways market, wait for a candle that pierces the outer Bollinger Band while RSI(14) is above 70 or below 30, then closes back inside the band. Trade a 5-minute reversal towards the middle band. Do not use it in a strong trend, where price can ride the band for a long time.
Setup
- Chart: 1-minute candles
- Indicators: Bollinger Bands (20, 2) and RSI (14)
- Expiry: 5 minutes
- Market: sideways — the middle band is roughly flat
Rules for a put (Lower)
- The middle band is flat.
- A candle’s high pierces the upper band.
- RSI is above 70.
- The candle closes back inside the band.
- Open a put on the next candle.
Reverse for a call at the lower band with RSI below 30.
The filter that matters most
If the bands are widening and the middle band is sloping, the market is trending. Reversal trades against a trend are the main way this method loses. Skip them.
Common mistakes
- Taking the trade on the band touch instead of waiting for the close back inside.
- Trading during news, when bands expand quickly.
- Counting RSI and the stochastic oscillator as two separate confirmations — they measure almost the same thing.
FAQ
Why use two indicators?
Bollinger Bands show that price is stretched relative to recent volatility; RSI shows momentum is extreme. Requiring both cuts many weak signals.
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