After trading coins for 11 years, I hit my lowest point in 2018, losing a principal of 300,000 meant for my wedding down to just 2800, and my wife almost left me. Later, relying on a combination strategy of 'RSI + Bollinger Bands,' I not only paid off my debts but now make a stable monthly profit reaching millions.
Many people think technical indicators are useless, but that's because you haven't found the right combination. RSI (Relative Strength Index) is like a thermometer, measuring market temperature; the Bollinger Bands are like guardrails, framing the price fluctuation range. Using either one alone can easily lead to failure, but using them together can accurately capture signals of 'sell when overheated, buy when overcooled.' Today, I will break down this practical method I've used for 8 years so you can get started after reading.
First, understand the 'temperament' of the two indicators: why using them alone can be misleading?
1. RSI: Don't be fooled by 'overbought and oversold.'
RSI reflects the strength of price movements, with values between 0-100. The most common mistake for beginners is: seeing RSI exceed 70 and selling, seeing it fall below 30 and buying, often getting slapped by the market.
Truth: In a strong market, RSI being overbought (>70) may last a long time (like in the 2021 Bitcoin bull market, where RSI remained above 80 for 3 weeks); in a weak market, being oversold (<30) can also last a month.
Key: The 'divergence' of RSI is more important than just looking at the values. For example, when the price hits a new high, but RSI does not (top divergence), it indicates that the rise is losing momentum; when the price hits a new low, but RSI does not (bottom divergence), it may be ready to rebound.
(The above image is the daily chart of ETH in November 2023: the price hit a new high of $2100, but RSI dropped from 75 to 68, forming a top divergence, and then plummeted by 15%)
2. Bollinger Bands: the 'operating range' of prices.
Bollinger Bands consist of the upper band (resistance), middle band (20-day moving average), and lower band (support), acting like an elastic band wrapping the price in between.
During contraction: the distance between the upper and lower bands narrows, indicating that the market is about to change direction (after a long period of sideways movement, a breakout is inevitable).
During expansion: the bands open up, and the price moves in the direction it rushes is likely to continue that trend.
The role of the middle band: it acts as support in an uptrend and as resistance in a downtrend; breaking it may change the trend.
(The above image is the 4-hour chart of BTC in March 2024: after the Bollinger Bands contracted, they suddenly expanded, and the price broke through the upper band, subsequently rising by 3000 points)
Pitfalls of using them alone: When RSI is overbought, the Bollinger Bands may have just expanded (can still rise); when the Bollinger Bands break the lower band, RSI may have already bottomed (ready to rebound). Must be viewed in combination!
Five practical tactics for the golden combination: once the signal appears, the win rate increases by 60%.
First tactic: Middle band support + RSI bottom divergence = buy signal.
This is my most commonly used buying method, especially suitable for bottom fishing in bear markets.
Condition:
When the price drops to the lower band, rebound and stabilize at the middle band (20-day moving average).
RSI below 30, and when the price hits a new low, RSI does not hit a new low (bottom divergence)
Case study: In November 2022, BTC fell to $15500, RSI at 25, the price was lower than the previous low, but RSI was higher than the previous low (bottom divergence), then stabilized at the middle band of the Bollinger Bands, rising to $25000 over 3 months, a gain of 60%.
(The above image is a bottom-fishing case on the daily chart of BTC, where the arrows simultaneously satisfy two conditions)
Action: Buy in two batches, buy 50% when the price stabilizes at the middle band, and buy another 50% when RSI returns above 50, with a stop-loss set at 1% below the recent low.
Second tactic: Upper band pressure + RSI top divergence = sell signal.
Using this tactic in a bull market can avoid 80% of major drops.
Condition:
When the price hits the upper band, it breaks the middle band during the pullback.
When RSI is above 70 and the price hits a new high, but RSI does not reach a new high (top divergence).
Case study: In November 2021, ETH rose to $4860, RSI at 80, price reached a new high but RSI was lower than the previous high (top divergence), then broke the middle band of the Bollinger Bands and fell to $2800 over 2 months, a drop of 42%.
Action: Sell in two batches, sell 50% when breaking the middle band, sell another 50% when RSI drops below 50, with profits set at least 5% below the recent high.
Third tactic: Bollinger Bands contraction + RSI sideways = precursor to a market shift.
Sideways markets can be the most torturous, but using this tactic can allow you to ambush in advance.
Condition:
The distance between the upper and lower bands of the Bollinger Bands shrinks for 3 consecutive days (contraction)
RSI in the range of 40-60 (neither overbought nor oversold)
Signal: Once the price breaks the upper band, and RSI breaks above 60, it is a rising signal; if it breaks the lower band and RSI falls below 40, it is a falling signal.
(The above image is the 1-hour chart of SOL coin in May 2024: after the Bollinger Bands contracted, it broke the upper band, and RSI rose in sync, increasing by 18% within 4 hours)
Action: Buy 30% of your position at the breakout, add more once it stabilizes, and set a stop-loss at 1% in the opposite direction of the breakout point (for example, if the upper band breaks, set the stop-loss below the lower band).
Fourth tactic: Middle band turn + RSI golden cross = trend initiation.
Suitable for catching the early stages of a trend, more reliable than just looking at moving averages.
Condition:
The middle band of the Bollinger Bands (20-day moving average) flattens from downward and starts to turn upward.
RSI's K line (fast line) crosses above the D line (slow line) forming a golden cross, and the golden cross occurs below 50.
Principle: A turn in the middle band indicates a trend reversal, and an RSI golden cross indicates that short-term strength is following up.
Case study: In June 2023, ADA coin, the middle band changed from down to flat then up, RSI formed a golden cross at around 40, and then rose 120% in 2 months.
Action: Enter when the middle band turns, with a position of 50%, reduce 20% when RSI hits 70, and set a stop-loss if breaking the middle band.
Fifth tactic: Bollinger Bands expansion + RSI extreme values = trend continuation.
In a one-sided market, using this tactic can yield significant profits.
Condition:
Bollinger Bands continuously expand (upper band up, lower band down)
RSI above 70 (uptrend) or below 30 (downtrend), but without divergence.
Principle: Expansion indicates a strong trend; extreme values in RSI without divergence indicate further rise/fall.
Case study: In February 2024, DOGE coin, Bollinger Bands expanded, RSI at 75 but no top divergence, rose from $0.07 to $0.15, doubling in just 10 days.
Action: In an uptrend, add positions when the price pulls back to the middle band, and do not take profits if there is no divergence in RSI, until a top divergence appears to sell; in a downtrend, do the opposite.
Three details to improve win rates: experienced traders are secretly using them.
Volume validation: All signals must be accompanied by trading volume. For example, when bottom fishing, the price stabilizes at the middle band, and trading volume must be more than 50% larger than the average volume of the previous 3 days, indicating that funds are entering the market.
Combine different time frames: look at the trend in larger time frames (daily), and find entry points in smaller time frames (4-hour). For example, if a bottom divergence appears on the daily chart, find opportunities at the middle band support on the 4-hour chart for higher accuracy.
Avoid 'false signals':
RSI divergence after the price does not break the middle band is not considered an effective signal.
After the Bollinger Bands break, if the price returns within 3 candlesticks, it may be a false signal to lure buyers/sellers.
Finally, I present a 'life-saving iron law' to you.
Never go all-in, with a single coin position not exceeding 30%; divide the principal into 10 parts and use 1-2 parts each time.
Stop-loss must be set, even if you think 'it will definitely rebound.' Do not let a single stop-loss exceed 2% of the principal.
If the trend is not favorable, get out; don't fight the market. For example, if after buying, the price breaks the middle band, cut losses regardless of how much you lose.
Do not invest in altcoins with a market capitalization below 1 billion; they have poor liquidity, and the main forces can easily control them.
After two consecutive stop-losses, take a break for 3 days; when your mindset collapses, trading will inevitably lead to losses.
Using this method, I preserved 80% of my principal during the bear market in 2022, and in 2023 I captured 3 waves of the market, tripling my investment. Remember: making money in the crypto world does not rely on luck, but on the execution of 'entering when the signal appears, leaving when the signal disappears.'
Save this article, and next time you analyze the chart, follow it step by step; persist for 3 months, and you will find yourself no longer chasing highs and cutting losses. Follow me, and next week I'll teach you advanced techniques for 'volume + position distribution' so you can catch the main force's selling faster than anyone else!
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