ON MEAN REVERTING STOCKS
Bollinger Bands are a volatility indicator with a middle moving average plus upper and lower bands.
When the bands are narrow (a “squeeze”), it signals a big price move is likely coming. When they are wide, volatility is high.
Traders watch for the price hitting the bands to signal potential “overbought” (at the top) or “oversold” (at the bottom) conditions, and use consistent touches to confirm a strong trend.
RSI
The Relative Strength Index (RSI) is a momentum indicator that measures the speed and change of price movements on a scale of 0 to 100.
It’s mainly used to identify overbought (typically above 70) and oversold (below 30) conditions.
Traders also watch for “divergence”—when the price trend and the RSI trend move in opposite directions—as a potential signal of a coming trend reversal.
ATR
The Average True Range (ATR) is purely a volatility indicator. It tells you how much an asset’s price is moving on average, but it does not indicate the direction of the trend.
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A high ATR value means the price is moving a lot (high volatility).
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A low ATR value means the price is quiet and moving very little (low volatility).
The most common use for ATR is in risk management. Traders use it to:
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Set Stop-Losses: You can place a stop-loss at a multiple of the ATR (e.g., 2x ATR) below your entry price. This adapts your stop-loss to the stock’s current volatility, preventing you from being stopped out by normal price fluctuations.
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Determine Position Size: If a stock has a high ATR (it’s very volatile), you might take a smaller position to manage the increased risk.
VWAP
MOST USED BY STOCK THAT HAVE HIGH INSTITUTIONAL