Bollinger Band bounce

Mean reversion · Difficulty: Intermediate

Education only. Delayed data. Past results do not predict future results. Not financial advice, and no strategy here promises a profit. Every strategy can lose money, and a rule that worked on past charts may stop working. Practise with virtual money first.

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The idea

Bollinger Bands wrap price with an average and bands two standard deviations away. In a range, price touching a band often drifts back toward the middle line.

Indicators and settings

Bollinger 20, 2 with RSI 14.

Entry rule

In a flat or gently trending market, consider a long when price pokes below the lower band and then closes back inside it with RSI turning up. The reverse for shorts.

Exit rule

Take profit near the middle band (20 SMA); a full run to the opposite band is a bonus, not the plan.

Stop-loss and risk rule

Stop just beyond the extreme of the band touch. If price keeps closing outside the band, step aside.

Best conditions

Range-bound markets with no strong trend.

Pitfalls

In strong trends price can ride a band for a long time ('walking the band').
A touch of the band is not a signal on its own.

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Illustration only; ignores slippage, tax and most costs. Not financial advice.