Bollinger Bands can be applied on various indicators to determine the overbought and oversold levels. This helps in catching tops and bottoms where correction may start. Volatility is an early indication of market mood.
In the chart below, we applied Bollinger Bands 20 period/2 Standard deviation on RSI (14). We look for the areas where prices move out of the Band on the price panel as well as the areas where RSI moves out of the Band on the RSI panel.
The RSI is meandering in high overbought areas, it leaves the upper band and falls back into the band, the price follows the same.
We can also notice, there is a small 4 period RSI Punch Sell signal. The Bollinger Bands, the punch signal in the over bought zones, gives a very good indication of a correction, which may follow below 11000 swing levels in the Nifty.
The island reversal candle pattern served as a icing on the cake for this sell (corrective) pattern.
We are all aware of the results that followed!
Wrapping up with a cue! Have a look at the RSI now! It has a story to tell. Listen to it. Trade Well
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