November 9, at 8: Sorry for my confusion. You mentioned both options but it appears that you prefer to wait for the cross back rather than trailing the stop. Just as you need to learn specific price patterns, you also need to find out how bands respond to certain price movements. Nice article, can u please mail me the code so i can test it on instruments i trade.
I created this post to help people learn six highly effective Bollinger Bands trading strategies they could start using immediately. That sounds easy, doesn't it? Well, I have tried systems that have low win percentages and I have failed every time. Look at the below screenshot using both the Bollinger Bands and Bollinger Band width.
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As I said before, Bollinger Bands are an excellent indicator but only if you use them correctly, and the inventor, John Bollinger, created a number of rules to guide traders as to how to use them. You can see the full 22 Bollinger Bands rules here.
In other words, if a security closes above the upper band you should see this as a breakout and go long. Conversely, if a security closes below the lower band you should go short. The most common way to trade this strategy then, is to look for a close above the upper band or a close below the lower band. You then go long or short on the next open. There is a compounded annualised return of just 4. When short positions are taken out and the system is run long only, the performance improves, to 5.
As mentioned earlier, Bollinger Bands can be used in many ways and you could write a whole book just about Bollinger Bands strategies alone.
The exact sell criteria is not shown so I will assume that we exit the stock when the reverse occurs. To test this strategy I have also included some extra liquidity rules so that we avoid thinly traded penny stocks , a ranking rule in order to choose between signals and a market timing rule so that we do not trade during a bear market. In addition, we will spread risk so that we can hold up to 20 positions at one time.
This data includes delisted tickers and is adjusted for corporate actions. As you can see from the results of the test, the strategy was able to return The high win rate of this strategy makes it appealing and the idea looks to have potential. It must be noted, however, that the results do depend on getting good price fills on the open. I tested the strategy again using the buy price as half-way between the open and the high, and the sell price as half-way between the open and the low, and the annualised return dropped to 3.
To improve this system I would suggest looking more closely at the entry price and ranking mechanism. This is a bit trickier to model using the simulator. But it is possible to come up with a strategy by specifying the number of higher opens or closes above the upper band. Or by the number of lower opens or closes below the lower band. The strategy uses the open price to calculate the default Bollinger Band parameters 20,2 and trades are entered on the same day close.
And it uses a liquidity filter to avoid thinly traded penny stocks and the like. Choose lowest ranked signals first. The results show a One of the reasons why the strategy works well, however, is that it relies on trading on the close.
This might be a more accurate representation of the price fills we would actually get when trading the system. Overall, the results are pretty good. With some decent tools and a little bit of discretion there may be some potential to be found here. Below is the full equity curve from But what if those tags occur when the stock is already in an uptrend?
Maybe there is a possibility that a close below the bottom Bollinger Band could actually be a good time to trade the pullback? We need the stock to be in an uptrend and we only exit by trailing stop. As can be seen below, the results are OK. Annualised return in the in-sample period was In the out-of-sample period, the annualised return was Again, the strategy suffers from the problem of trading right on the close, so this strategy and strategy three might benefit from some discretion.
However, the higher win rate of strategy 2 suggests that strategy 2 might also be worth investigating. Whereas trading strategy two relies on getting good price fills on the open. Then you'll love some of the free extras I've put together. Just enter your email address below to download and stay alerted to new content. You can also use a Fibonacci measurement for profit taking and trade management. This is a more advanced bollinger band strategy as I am using a combination of technical analysis to trade this chart.
This highlights that while technical indicators such as the bollinger band can aid you in trading, price action will always rule. Bollinger bands can frame price and show you when there is an extreme move worth noting.
Your trading system may require price movement touching or exceeding the upper or lower bands before taking a trade.
You can use these as a mean reversion system or a continuation swing trading strategy. The mean reversion aspect is a more advanced bollinger strategy and is shown in the second trade example in the last chart. Bollinger bands can keep you objective in your trading by offering you not only a place to consider a trade, but areas to consider taking profits as described above. Whatever way you choose to use the bollinger bands as part of a swing trading strategy, ensure you test it and log a trade plan so you can stay on track.
Another use of the bollinger bands is to measure price compression and a break from the consolidation. This is used in conjunction with the keltner channel and is called the squeeze. The Bollinger Band Squeeze can also be a trading system but like every trading method, test your idea before putting money on the line.
Mail will not be published required. Forex Swing Trading Strategy 6: Bollinger Bands Indicator The bollinger bands is made up of three lines: Top band, middle band, and lower band. Using the standard bollinger band setting for this strategy, the lines are:
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In Episode 4 of the Better System Trader podcast, Nick Radge discusses some trading ideas he’s used to create profitable personalbank.cf mentions a Bollinger Band idea which is also published in his book Unholy Grails.. Nick says: the strategy that we did test and showed very promising results was an entry using a Bollinger band and an exit using the opposite Bollinger band, but we use . This bollinger band strategy is a continuation trading strategy that also uses the 20 period moving average of the bands for trend direction. Bollinger bands are a good measure of volatility of the instrument you are trading and we can use this to form the basis of a swing trading system for Forex or any other market.. Bollinger Bands . Learn a simple day trading strategy using Bollinger Bands and MACD by Markus Heitkoetter. Two indicators and two steps to profit from intraday trends.