Bollinger Bands Mean Reversion (For Intraday & Swing)

Bollinger Bands Mean Reversion Strategy


Key Concepts

1. Bollinger Bands Basics:
  • Bollinger Bands consist of three lines:
    • Middle Band: A 20-period simple moving average (SMA).
    • Upper Band: 2 standard deviations over the Middle Band.
    • Lower Band: 2 standard deviations beneath the Middle Band.
  • The width between the upper and lower bands extends and contracts in light of market unpredictability.
2. Mean Reversion Principle:
  • The essential presumption of this system is that after the cost moves excessively far from its mean (moving average), it will return to the mean.
  • At the point when the value contacts or crosses the upper or lower bands, it shows that the cost is either overbought or oversold and could return to the Middle Band.

Strategy Setup


1. Indicators Used:

  • Bollinger Bands (20, 2)
  • RSI (Relative Strength Index) as an affirmation indicators, frequently with a setting of 14-period.
  • Optional: Volume indicator to survey the strength of a breakout or inversion.

2. Timeframes:

  • For Intraday Trading: Utilise 5-minute, 15-moment, or 30-minute graphs
  • For Swing Trading: Utilise 60 minutes, 4-hour, or day to day outlines to catch longer patterns.

3. Entry Criteria:

  • Buy Entry (Oversold Condition):
    • Value contacts or plunges underneath the lower Bollinger Band.
    • RSI is under 30, showing oversold conditions.
    • Search for a bullish inversion flame design (e.g., hammer, bullish engulfing) for affirmation.
    • On the other hand, you can enter when the cost moves back over the lower band after a nearby external the band.
  • Sell Entry (Overbought Condition):
    • Value contacts or crosses over the upper Bollinger Band.
    • RSI is over 70, showing overbought conditions.
    • Search for a negative inversion flame design (e.g., shooting star, bearish engulfing) for affirmation.
    • On the other hand, you can enter when the cost moves back underneath the upper band after a nearby external the band

Exit Criteria:

  • Target for Mean Reversion:
    • First objective is the centre Bollinger Band (20-period moving average).
    • Assuming value energy is solid, stand firm on the foothold for possible continuation past the Middle Band.
  • Stop Loss:
    • For purchase trades, place a Stop Loss just underneath the new swing low or lower Bollinger Band.
    • For sell trades, place a Stop Loss simply over the new swing high or upper Bollinger Band.
    • A more Momentumful stop can be put somewhat past the band where the exchange was started to restrict risk.