analytics
Bollinger Bands
Trade reversals when price touches the bands
Intermediateplay_arrowTry in Backtesting
What Is This Strategy?
Bollinger Bands consist of a middle SMA line with two outer bands that are standard deviations away. The bands widen and narrow based on volatility, creating dynamic support and resistance levels.
How It Works
- Middle Band = 20-day Simple Moving Average
- Upper Band = Middle Band + (2 x Standard Deviation)
- Lower Band = Middle Band - (2 x Standard Deviation)
- Price touching lower band = potential buy signal
- Price touching upper band = potential sell signal
Key Parameters
Period
Moving average period
Standard Deviations
Band width in std devs
When to Use
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Best For
- • Range-bound markets
- • Identifying volatility changes
- • Mean-reversion trades
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Avoid When
- • Strong trending markets
- • During breakouts
- • Extreme volatility events
Risks & Limitations
warning
Be Aware
- • Price can "walk the band" in trends, causing losses
- • Breakouts can lead to extended moves outside bands
- • Needs volume or other confirmation
Example Trade
Scenario
MSFT touches the lower Bollinger Band with RSI at 28.
BUY
Reasoning
Price is at the lower band with oversold RSI, suggesting a bounce is likely.
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