Hello,
How can I identify a trend or trend reversal (counter-trend) using RSI, Stochastic, and Bollinger Bands?
What are the recommended settings for RSI, Stochastic, and Bollinger Bands?
To identify a trend or counter-trend using RSI, Stochastic, and Bollinger Bands, you can look at how each indicator behaves. When the
RSI is above 70, the market might be overbought, signaling a possible reversal or counter-trend move downward. If it's below 30, it could be oversold, pointing to a potential bounce or trend change upward. The
Stochastic works in a similar way — readings above 80 suggest overbought conditions, while below 20 means oversold. Look for crossovers in these zones for possible reversals. With
Bollinger Bands, if the price hugs the upper or lower band, it's usually trending. But if the price suddenly breaks outside the bands and snaps back, that could be a sign of a counter-trend move. Using all three indicators together helps confirm what the market is really doing and gives stronger signals.
The recommended settings for RSI, Stochastic, and Bollinger Bands are usually the default ones, as they work well for most trading styles. For
RSI, the standard setting is
14 periods, which balances sensitivity and reliability. For
Stochastic, the common setup is
14, 3, 3 — where 14 is the lookback period, and the 3s are for smoothing the %K and %D lines.
Bollinger Bands typically use a
20-period moving average with bands set
2 standard deviations above and below. These settings are great starting points, but feel free to tweak them based on your trading style and timeframe.
