Getting Mean with Bollinger Bands
After a discussion with a fellow trader
it’s become apparent I have not been paying enough attention to good old fashioned Bollinger Bands
. Here I take a look at reversal candles in combination with bollinger bands.
After lots of visual backtesting I’m pleasantly surprised to see how most markets can be traded well with Bollinger Bands, and how reversal candles forming outside the bands provides a simple strategy to work across all timeframes.
AUDUSD below is an example of how many opportunities appeared on the daily chart – for simplicity I have assumed a successful trade when a reversal candle forms near the band, and reverses to meet the 20sMA. Failiure to reach the 20sMA is logged as a failed signal.
Next we have the weekly GBPUSD which is at a resistance level. A Bearish Harami candle pattern formed last week and has since been followed by a successive bearish week. So it looks as though Cable may begin its journey back to its own mean!
These examples have focussed on contra-trend trades, but the technique is equally powerful to use when deciding whether to ‘take profit’ or ‘move your stop’ if already in the trade.