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)
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