I actually really like the double bollinger band idea from yesterday, and in combination with some sort of oversold/overbought indicator, I think it can be very useful. I’m not a big fan of the RSI even though it’s a very basic (and therefore attractive) indicator, so I’ve opted for Stochastics. The other indicator I’m using is ADX. I’ve scraped MAs from my charts.
ADX is suppose to be used to measure trend strength, but I find that it (perhaps oddly) does just find with finding market turns.
The vertical lines are showing cross overs of the red and green line. I’m not sure what the blue line is showing, but for now there’s no reason to get rid of it. As for stochastics, I’ve found that using the 80 line for overbought conditions doesn’t always work out so well, but the 90 works much better. So the green dotted lines are showing 80/20, while the red line is showing 90/10. In combination with the buy/sell zones for the double bollinger bands, I think it provides some good screening for trade opportunities.
While an oversold stochastic is almost always met with being in the buy zone of the double BB, remember that breaking the bands of the 2 deviation BB is also an overbought indicator.