The Strategic Trader
Detailed Strategy Evaluation

Trading Methods Using Bollinger Bands

Bollinger bands consist of 3 lines. A moving average in the middle, an upper band (avg + x standard deviations), and a lower band (avg – x standard deviations). Commonly the upper band is thought of as overbought territory and the lower band oversold. In this article we will explore several uses of Bollinger bands:

  1. Buying when the price crosses below the lower band
  2. Buying when the price crosses above the upper band
  3. Buying when the price crosses back above the lower band
  4. Buying when the price crosses back below the upper band

Test #1: Buy on cross below lower band

This method tested out well. There were a few parameter combinations that narrowly exceeded our profit and percent profitable targets set for 5 bar exits. The best parameter combination was 1.5 standard deviations and 4 for the lookback period. Here is the equity curve achieved:

Test 2: Buy on cross of upper band

This method did not yield a single profitable result.

Test 3: Buy when price crosses back above lower band

This method is similar to test #1 except we wait for confirmation of price turning around by crossing back above the lower band. Common sense would dictate this strategy should perform well. However, the actual results were closer to Test #2 than Test #1.

Test 4: Buy when price crosses back below the upper band

This strategy was unable to exceed our preset thresholds. Attached is the equity curve for the best parameter combination: 2.5 std, 24 period


We discovered that buying on oversold bollinger band conditions can be a viable strategy. However, more work is needed to fully exploit this potential edge.

Source Code:

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