I.
Indicators & Settings
RSI (Relative Strength Index):
Period: 14
Levels: 30 (Oversold), 70 (Overbought)
Bollinger Bands®:
Period: 20
Deviations: 2.0
Price: Close
MACD (Moving Average Convergence Divergence):
Fast EMA: 12
Slow EMA: 26
Signal SMA: 9
II. Entry Rules (LONG Example - Reverse for SHORT)
Enter a LONG position when ALL conditions align:
RSI Confirms Oversold: RSI < 30 (Price is potentially exhausted to the downside).
Price Touches/Crosses Lower Bollinger Band: Price closes AT or BELOW the Lower
Bollinger Band (Signaling potential extreme low and mean reversion).
MACD Bullish Signal: MACD HISTOGRAM TURNS POSITIVE OR MACD LINE CROSSES ABOVE
SIGNAL LINE (Confirms bullish momentum is starting).
Trend Context (Optional but Recommended): Price is ABOVE the 200-period SMA (For
higher-timeframe bias) OR the Lower Band is FLAT or RISING (Not plunging -
indicates potential support).
SHORT Entry: RSI > 70, Price touches/breaks Upper Band, MACD Histogram turns
negative / Line crosses below Signal.
III. Profit Targets (Take Profit - TP)
TP1 (Conservative): Middle Bollinger Band (20-SMA). Secure 50-70% of position here.
(Reversion to mean).
TP2 (Aggressive): Upper Bollinger Band (For strong trends). Take remaining 30-50%
profit here or if:
RSI crosses above 60 (Momentum slowing from overbought).
MACD Histogram shows clear divergence (Price makes new high, MACD doesn't).
IV. Exit Rules (Stop Loss - SL & When Wrong)
Initial Stop Loss (SL): Place 1-2 ticks BELOW the LOW of the candle that triggered
the entry (for LONG).
Risk Management: Ensure SL distance represents <1-2% of your total trading capital.
Trailing Stop (Optional but Recommended): Once price reaches TP1, move SL to break-
even. After TP1, trail SL below the 2-3 period Low.
Exit if Thesis Fails (When "Return" is Negative):
Price closes BELOW the Lower Bollinger Band after your entry (Confirms breakdown,
not reversal).
RSI stays below 30 for 3+ consecutive candles after entry (No momentum recovery).
MACD re-crosses bearishly (Signal line crossover DOWN or Histogram plunges
negative) before reaching TP1.
V. Why This Combination Works
RSI: Identifies overextended conditions.
Bollinger Bands: Defines volatility and mean reversion targets (Middle Band) +
potential breakout/extreme points (Band touches).
MACD: Provides trend direction and momentum confirmation. Filters false RSI/BB
signals.
Synergy: RSI + BB identifies where a reversal is likely. MACD confirms when
momentum shifts.
VI. Critical Risk Management & Notes
Backtest First: Test this extensively on historical data for YOUR asset before live
trading.
No Guarantees: No indicator or strategy wins 100%. Losses are part of trading.
Position Sizing: Never risk >1-2% of capital on a single trade. Calculate: Position
Size = (Account Risk %) / (Entry - SL Distance).
Avoid Choppy Markets: This works best in ranging or gently trending markets. Avoid
during extreme news or low volatility (Bands squeeze).
Confirmation is Key: Wait for the candle triggering the setup to CLOSE. Don't enter
mid-candle.
Higher Timeframe Bias: Check the next higher timeframe (e.g., if trading 15-min,
check 1H) - trade in the direction of the higher trend.
Example Trade Flow (LONG):
Price drops sharply, closes below Lower Band -> RSI reads 28 -> MACD histogram just
turns green -> ENTER LONG.
SL: Below entry candle low.
TP1: Middle Bollinger Band (sell 60%).
TP2: Upper Bollinger Band (sell 40%).
EXIT EARLY: If price closes below Lower Band again OR RSI stays <30 for 3 candles.
Use this framework, refine it through backtesting, and prioritize strict risk
management above all else. Good luck! 📈
