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

Bollinger bounce NZDUSD H1

NZDUSD 1 hour chart

Bollinger bounce NZDUSD H4

NZDUSD 4 hour chart

Bollinger bounce USDJPY H1

USDJPY 1 hour chart

Bollinger bounce USDJPY H4

USDJPY 4 hour chart

Bollinger bounce USDCAD H1

USDCAD 1 hour chart

Bollinger bounce USDCAD H4

USDCAD 4 hour chart

Bollinger bounce USDCHF H1

USDCHF 1 hour chart

Bollinger bounce USDCHF H4

USDCHF 4 hour chart

Bollinger bounce AUDCAD H1

AUDCAD 1 hour chart

Bollinger bounce AUDCAD H4

AUDCAD 4 hour chart

Bollinger bounce AUDCHF H1

AUDCHF 1 hour chart

Bollinger bounce AUDCHF H4

AUDCHF 4 hour chart

Bollinger bounce AUDJPY H1

AUDJPY 1 hour chart

Bollinger bounce AUDJPY H4

AUDJPY 4 hour chart

Bollinger bounce AUDNZD H1

AUDNZD 1 hour chart

Bollinger bounce AUDNZD H4

AUDNZD 4 hour chart

Bollinger bounce CADCHF H1

CADCHF 1 hour chart

Bollinger bounce CADCHF H4

CADCHF 4 hour chart

Bollinger bounce CADJPY H1

CADJPY 1 hour chart

Bollinger bounce CADJPY H4

CADJPY 4 hour chart

Bollinger bounce CHFJPY H1

CHFJPY 1 hour chart

Bollinger bounce CHFJPY H4

CHFJPY 4 hour chart

Bollinger bounce EURAUD H1

EURAUD 1 hour chart

Bollinger bounce EURAUD H4

EURAUD 4 hour chart

Bollinger bounce EURCAD H1

EURCAD 1 hour chart

Bollinger bounce EURCAD H4

EURCAD 4 hour chart

Bollinger bounce EURCHF H1

EURCHF 1 hour chart

Bollinger bounce EURCHF H4

EURCHF 4 hour chart

Bollinger bounce EURGBP H1

EURGBP 1 hour chart

Bollinger bounce EURGBP H4

EURGBP 4 hour chart

Bollinger bounce EURJPY H1

EURJPY 1 hour chart

Bollinger bounce EURJPY H4

EURJPY 4 hour chart

Bollinger bounce EURNZD H1

EURNZD 1 hour chart

Bollinger bounce EURNZD H4

EURNZD 4 hour chart

Bollinger bounce GBPAUD H1

GBPAUD 1 hour chart

Bollinger bounce GBPAUD H4

GBPAUD 4 hour chart

Bollinger bounce GBPCAD H1

GBPCAD 1 hour chart

Bollinger bounce GBPCAD H4

GBPCAD 4 hour chart

Bollinger bounce GBPCHF H1

GBPCHF 1 hour chart

Bollinger bounce GBPCHF H4

GBPCHF 4 hour chart

Bollinger bounce GBPJPY H1

GBPJPY 1 hour chart

Bollinger bounce GBPJPY H4

GBPJPY 4 hour chart

Bollinger bounce GBPNZD H1

GBPNZD 1 hour chart

Bollinger bounce GBPNZD H4

GBPNZD 4 hour chart

Bollinger bounce NZDCAD H1

NZDCAD 1 hour chart

Bollinger bounce NZDCAD H4

NZDCAD 4 hour chart

Bollinger bounce NZDCHF H1

NZDCHF 1 hour chart

Bollinger bounce NZDCHF H4

NZDCHF 4 hour chart

Bollinger bounce NZDJPY H1

NZDJPY 1 hour chart

Bollinger bounce NZDJPY H4

NZDJPY 4 hour chart

*Note: These results do not account for trading costs, so ignore the net profit/loss amounts. These backtests are designed to only measure the Bollinger bounce tendency (i.e. win rate).

And here's the summary of the backtest:

Bollinger bounce statistics

The average win rate is approximately 50% on both the 1 hour and 4 hour charts.

So the result is quite clear: There is no observable edge to the Bollinger bounce. Prices are just as likely to move up or down following a "bounce" off the Bollinger bands.

This is quite a surprising result to me, as I've seen many people base their trading strategy on such Bollinger "bounces" over the years.

The data, however, says that the winning probability is no better than that of a coin flip!

Your thoughts?

This is the first of the Forex Backtest Friday series of posts. How are you liking it so far? Would you like me to keep publishing my backtest results?

Is there anything you'd like me to add or remove from future backtest reports?

What effects/technical indicators should I test next?

Let me your thoughts in the comments section below.