Figure 4: Usage of Bollinger Squeeze with the RSI indicator

The above scenario of combining RSI and Bollinger Band in our analysis can be easily captured by using an automated software program which could save a significant amount of time from looking for these opportunities. One such software is ChartNexus XPertTrader (www.chartnexus.com) that can be used to automatically screen the whole market for stocks that have Bollinger Squeeze together with the RSI trending higher.

This article has highlighted the importance of understanding the volatility of the stock market in order to make profitable trades. A powerful indicator such as Bollinger Band is widely used to identify buy and sell signals based on two applications. The first involves using the bands as support and resistance with the second involving looking for a Bollinger Squeeze followed by a Bollinger breakout.. Combining Bollinger band with the RSI indicator also increases significantly the probability of the signal being valid.