Bollinger Bands + RSI + Stochastic scalping strategy: how the small step can bring big achievements

We have tried out different indicators and their combinations, but mostly within the 1H timeframes or 30 M. Could we forget about scalpers?

Definitely not

Besides, we have seen all these three indicators in action, when testing Bollinger Bands Scalping with RSI & Stochastic strategy, and we can understand the origins of the traders’ preferences towards them.

Do they perform the same smoothly while scalping?

Keep reading and learn the results.

Bollinger Bands, RSI, and Stochastic Oscillator Indicators Briefly Explained

1. Bollinger Bands Indicator

Bollinger Bands is a great tool to examine the volatility of the currency pairs. This indicator consists of 3 bands, which form the oversold, overbought levels and a middle band as a base. In short, it can be read as follows: when the price reaches the upper band, we should be ready to sell and on the contrary when the price touches the lower band, we should be ready to buy.

Remember we have talked about how differently you can read the Bollinger Bands indicator and how it can be itself a quite complicated system. If you haven’t read, please check it here.

While trading this strategy, we perceive the price piercing the Upper/Lower Bands as a sign of the future trend reversal. However, we totally lose sight of the price behavior between the bands and therefore we can lose some perspective entry points. Again – it is still a matter of further adjustment and backtesting.

We use additionally RSI, and Stochastic Oscillator to find the entered moments.

2. RSI (Relative Strength Index)

RSI shows the strength of the trend and the possibility of the trend reversals as well as overbought and oversold periods.

3. Stochastic Oscillator

Stochastic Oscillator consists of two averages ‘locked’ between 0 and 100 levels, providing signals while reaching the Overbought (over 80 line) and Oversold (below 20 line) levels.

To check this (or any other) strategy’s performance you can:

• Download Forex Tester for Free
• Try Forex Tester Online for Free

Scalping Strategy with Bollinger Bands, RSI and Stochastic Oscillator Indicators Example

Let’s check the scalping strategy based on the combo of the 3 great indicators that proved to be resultative: Bollinger Bands, RSI and Stochastic.
 

Technical Information

Currency pair: major currency pairs.

Indicators: Bollinger Bands (20, 2. SMA (simple moving average)) and RSI (14), Stochastic Oscillator (5, 3, 3).

Time Frame: 5 min.

When do you start the long order (buy)?

• The price goes below the Lower Bollinger Band
• RSI reaches below 30 level
• Stochastic Oscillator reaches below 20 level
• Enter the buy trade at the close of the candle where all these 3 conditions meet
• Exit the trade when the first candlestick closes above the Middle band.
• Stop Loss: 10 pips below the lowest value of the piercing candlestick
• Take profit: 20 pips.

When do you start the short order (sell)?

• The price goes above the upper Bollinger Band
• RSI reaches above the 70 level
• Stochastic Oscillator reaches above 80 level
• Open a Sell trade at the close of the candle where all these 3 conditions meet
• Exit the trade when the first candlestick closes beneath the Middle band
• Stop Loss: 10 pips above the highest value of the piercing candlestick.
• Take profit: 20 pips.

*How long it took us to enter the 50 trades for the Training Set and 20 trades for the Forward Testing.

The full version of the theory of our backtesting experiments and how did we come up with the idea of such backtesting you can read here.

Further Adjustments for Better Results

What else you can try to adjust:

• Indicators settings – we use the default settings, however, there are still a lot of options and moreover – there are a lot of strategies based on the custom indicators’ settings;
• Reading of the indicators – as we have mentioned above, there are different ways to trade Bollinger Bands, for example, don’t lock yourself into one of them, try different readings;
• Timeframe – you can always test this strategy during the longer timeframes and day trading even;
• Stop Loss and Take Profit – we have set the stable number of both, but what if manual adjustment of the SL and TP can bring you better results?
• Change the combination of the indicators.

As you can see, backtesting is quite simple activity in case if you have the right backtesting tools.

The testing of this strategy was arranged in Forex Tester Online with the historical data that comes along with the program.

Conclusion

As you can see the strategy showed positive and sustainable results within all the markets.

However, the size of the profits is quite moderate, we should bear in mind that it a scalping strategy and besides with the recommendations in the “Further Adjustment” section you can also backtest different variations of the strategy and aim for bigger profits.

And the last important thing:

It would be great if you perceived our backtesting experiment as a sign that you shouldn’t blindly believe anything found on the Internet, especially if you bet your real money on it. Try any information, test it, prove it and then use it within real-time trading.

FAQ

How to use RSI for Scalping?

To use RSI for scalping based on the article’s strategy, wait for the RSI to reach overbought (above 70) or oversold (below 30) levels, indicating potential trend reversals. When RSI is oversold and the price pierces the lower Bollinger Band and Stochastic is also oversold, it confirms a buy signal; conversely, when RSI is overbought with similar conditions on the upper band and Stochastic, it validates a sell signal.

These combined signals on a 5-minute chart help identify quick profit opportunities in line with the scalping approach outlined. Backtesting these signals is encouraged using Forex Tester.

How to read Bollinger Bands in Forex?

To read Bollinger Bands in forex trading, focus on the three main components: the upper band (20-period SMA + 2 standard deviations), the middle band (20-period SMA), and the lower band (20-period SMA – 2 standard deviations). A sell signal is typically generated when the price touches or pierces the upper band, indicating potential overbought conditions, while a buy signal occurs when it touches or pierces the lower band, suggesting oversold conditions.

These signals are often confirmed with other indicators like RSI and Stochastic to enhance reliability. Using Forex Tester Online can help you backtest these signals across different market conditions to refine your strategy.

How to use RSI and Bollinger Bands?

To use Bollinger Bands and RSI effectively, identify overbought/oversold conditions by monitoring when the price touches or pierces the Bollinger Bands and the corresponding RSI levels. A buy signal is generated when the price touches the lower Bollinger Band and the RSI is below 30, while a sell signal occurs when it touches the upper band and the RSI is above 70.

This combination helps confirm market extremes and potential reversals. Using historical data to backtest these signals can further refine your strategy. By combining these indicators, you enhance the reliability of your trading decisions.

How do you use Bollinger Bands effectively?

To use Bollinger Bands effectively, focus on identifying volatility changes and potential reversals. When the bands contract, it signals low volatility and potential breakouts; when they expand, it indicates high volatility and strong trends. Traders often set buy orders near the lower band and sell orders near the upper band, especially during periods of low volatility.

Combining Bollinger Bands with other indicators like RSI or Stochastic can enhance signal reliability by confirming overbought or oversold conditions.

What is the Bollinger Bands for 1 minute scalping?

For 1-minute scalping using Bollinger Bands, traders typically plot the bands on a chart to identify volatility and potential reversals. A common approach involves waiting for the price to close outside the bands, which can signal a strong trend or reversal. For example, a short entry might occur when the price closes below the lower band, while a long entry occurs when it closes above the upper band.

Combining Bollinger Bands with other indicators like the Awesome Oscillator or RSI can enhance signal reliability by confirming overbought or oversold conditions.

What timeframe do Bollinger Bands work best?

Bollinger Bands can work effectively across various timeframes, depending on your trading strategy and style. For scalping, a 5-minute timeframe is commonly used, as it provides a balance between signal frequency and reliability. For day trading, 15-minute or 1-hour charts might be preferred, offering a broader view of market trends.

The best timeframe depends on your specific trading goals and market conditions. Experimenting with different timeframes in tools like Forex Tester Online can help refine your approach.