Welcome to Forex Backtest Friday, a new post series where I share the backtest results of the market tendencies I investigate.

This week, we'll take a look at the classic Bollinger bounce.

The idea behind it is that after bouncing off the upper or lower Bollinger band, there is a tendency for prices to move back towards the middle of the Bollinger band channel.

bollinger bounce
bollinger band bounce

example used in Babypips

Is there really such a tendency?

To test this, I coded an expert advisor and ran backtests across the 28 currency pairs from Jan 2009 to May 2020.

Bollinger band setting:

  • Moving average period: 20
  • Standard deviations: 2

Sell setup criteria (reverse for buy setup):

  • Setup candle = Candle with top shadow crossing the upper Bollinger band
  • The Setup candle must close below the upper Bollinger band
  • The range of the candle before the Setup candle must be fully below the upper Bollinger band

Sell trade parameters (reverse for buy trade):

  • Upon Setup candle close, enter a sell trade
  • Stop loss = 1 pip above the Setup candle
  • Profit target = same as the stop loss allowance (1:1 risk-reward)
Bollinger bounce example

*Note: This is not a proper trading strategy. I'm using only the most basic (crude) parameters to test for a mean-reversion tendency following a bounce off the Bollinger bands.

Backtest settings:

  • Test period: 1 Jan 2009 - 31 May 2020
  • No trades to be taken within 1 hour of market open
  • Maximum 1 trade per currency pair, per day
  • Trading costs are not considered

The Results

Here are the results of the backtest (click to view):

Bollinger bounce EURUSD H1

EURUSD 1 hour chart

Bollinger bounce EURUSD H4

EURUSD 4 hour chart

Bollinger bounce GBPUSD H1

GBPUSD 1 hour chart

Bollinger bounce GBPUSD H4

GBPUSD 4 hour chart

Bollinger bounce AUDUSD H1

AUDUSD 1 hour chart

Bollinger bounce AUDUSD H4

AUDUSD 4 hour chart