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Bollinger Bands and RSI:
What are they and what do they tell us?
How To Use Them

Click on the stock symbol under the "BB&RSI" heading on the far right column on any of the data pages on the CoveredCalls.com site.


Quick Summary Table

READING1 MEANING2 ACTION(S)3
Stock price touches the upper Bollinger Band and RSI is greater than 70 A relative high in the stock price may have been reached and a downturn in stock price may occur in the near term.
  • Sell stock outright
  • Buy puts
  • Sell deep ITM covered calls
Stock price touches the lower Bollinger Band and RSI is less than 30 A relative low in the stock price may have been reached and an upturn in stock price may occur in the near term.
  • Buy stock
  • Buy calls
  • Sell OTM covered calls
Stock price is at the upper Bollinger Band but RSI is less than 70 Inconclusive.  Generally the current stock movement trend will continue.
  • Sell ATM covered calls
  • Establish some type of option spread
Stock price is at the lower Bollinger Band but RSI is greater than 30 Inconclusive.  Generally the current stock movement trend will continue.
  • Sell ATM covered calls
  • Establish some type of option spread

1. READINGs are relative to the settings you have selected for the Bollinger Bands and RSI on the chart that you are viewing.

2. MEANINGs are presented to be a general interpretation only and actual accurate analysis can differ materially based on many factors.

3. ACTIONs are not to be construed as a suggestion or recommendation to trade any security in any way, and are not meant as a comprehensive list of possible plays or methods.


Comprehensive Explanations

Bollinger Bands:

http://www.equis.com/free/taaz/bollinger.html

http://www.e-analytics.com/bolinger.htm

http://www.BollingerBands.com

RSI (Relative Strength Index):

http://www.equis.com/free/taaz/rsi.html

http://www.e-analytics.com/rsi.htm

 


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