Interpretation: If the price action (bullish candlestick) closes above the upper Bollinger Band, which I consider to be the first signal, we can then move towards the Stochastic oscillator and wait until it breaks the 80 level to the downside. Once the break has occurred a short position can be taken, with a potential move towards the middle Bollinger Band. Simultaneously, we place our stop loss above the shadow of the candle which closed above the upper Bollinger Band. After withdrawing 75 percent of the profit, the stop loss can be adjusted to breakeven (in case the price turns against the trader). As the price starts to pull away from the middle Bollinger Band, and the price has penetrated the lower Bollinger Band, the remaining profit can then be withdrawn. Thus from the above example we have identified that the close price is of great significance when working with Bollinger Bands.
In the inverse situation we anticipate for a bearish candle to close below the lower Bollinger Band. Subsequently, when the Stochastic breaks above the 20 level, a long position can be entered, with a potential move towards the middle Bollinger Band, which is considered to be the first target. Consequently we are left with two options, to either close all positions or withdraw the 75 percent profit. If the second option is selected, the stop loss must then be positioned to breakeven when the price starts to pull away from the middle Bollinger Band. The remaining position should be closed when the price reaches the lower Bollinger Band.
I prefer to use Bollinger Band and Stochastic collectively to generate possible buy and sell signals as well as to identify overbought or oversold areas.
In the inverse situation we anticipate for a bearish candle to close below the lower Bollinger Band. Subsequently, when the Stochastic breaks above the 20 level, a long position can be entered, with a potential move towards the middle Bollinger Band, which is considered to be the first target. Consequently we are left with two options, to either close all positions or withdraw the 75 percent profit. If the second option is selected, the stop loss must then be positioned to breakeven when the price starts to pull away from the middle Bollinger Band. The remaining position should be closed when the price reaches the lower Bollinger Band.
I prefer to use Bollinger Band and Stochastic collectively to generate possible buy and sell signals as well as to identify overbought or oversold areas.