Figure 3: Bollinger Squeeze and Subsequent Bearish Breakout

We can further enhance the Bollinger breakout after the Bollinger Squeeze with another indicator thus increasing the probability of making a trade in the right direction of breakout. One popular indicator that can be used together with the Bollinger Squeeze is the Relative Strength Index (RSI) which was developed by J. Welles Wilder. The RSI is a powerful indicator used to measure the velocity of the price movements and the values are calculated based on the number of days that the price closes up and the number of days that the price closes down over a certain period of time. In this article, the period of time used is 14 days which is originally proposed by Wilder. Let us re-visit the earlier chart (Figure 2) which featured Hyflux where a buy signal was generated by Bollinger Squeeze on the 25^th Apr 2007. An analysis of the RSI indicator shows that the RSI was well supported during the Bollinger Squeeze and was trending upwards as the price approaches Bollinger breakout. This signifies that the price action remain firm throughout the Bollinger Squeeze and it grew in strength as breakout came beckoning. Figure 4 shows the chart of Hyflux using RSI indicator in conjunction with Bollinger Band.