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Bollinger Bands

There are several strategies based on Bollinger Bands.  I choose two of them for my first test.

 

Strategy # 1:

The classic strategy uses Bollinger bands as support and resistance. Indeed, we trade the bounce of bands. The basic rules are as follows:

Buy: when the price tests the lower band and closes above it, buy at the opening of the next bar. Close the position when the price closes above the moving average.

Sale: when the price tests the upper band and closes below it, sell at the opening of the next bar. Close the position when the price closes below the moving average.

All tests are performed with an initial capital of $ 10000, on EURUSD, for the period from 01-01-2008 to 01-01-2012 and for different time frames (M15, H1, H4 and D1). Volume of trade = 1 mini lot ($ 10K).

 

1 – Default settings for Bollinger Bands (20, 2.0).

 

Figure 1 : Time frame = Daily

 

TF

P/L ($)

PF

RF

SR

Equity DD (%)

D1

-210

0.86

-0.16

-0.04

12.17

H4

-837

0.70

-0.78

-0.13

10.50

H1

-574

0.93

-0.41

-0.03

13.11

M15

-4113

0.78

-0.92

-0.09

44.51

TF : Time Frame; P/L : Profit/Loss; PF : Profit Factor; RF :Recovery Factor; SR : Sharp Ratio; DD : Drawdown

 

2 – Optimization (genetic algorithm) for maximum balance (according to the parameters that give the maximum profit).

 

Figure 2 : Time frame = Daily. Les 10 meilleurs paramètres optimisés

 

Figure 3 : Time frame = Daily. 3ième paramètres de la figure 2 (nombre de trades significatifs)

 

Figure 4 : Time frame = H4

 

Figure 5 : Time frame = H1

 

Figure 6 : Time frame = M15

 

Strategy #2 :

The second way to use Bollinger bands becomes more and more popular in recently published books about Forex. The first time I saw one such strategy, it was in the book “The Little Book of Currency Trading: How to Make Big Profits In The World of Forex” by  Kathy Lien. By the way, I recommend all books written by this author. The strategy is to trade the breakout of bands and has the advantage of integrating the component of volatility that makes the same strategy can be applied unchanged to many currency. The basic rules of this second strategy are as follows:

Buy: when the price breaks through the upper band and closes above it, buy at the opening of the next bar. Close the position when the price closes below the moving average.

Sale: when the price breaks through the lower band and closes below it, sell at the opening of the next bar. Close the position when the price closes above the moving average.

 

1 – Default settings for Bollinger Bands (20, 2.0).

 

Figure 7 : Time frame = Daily

 

TF

P/L ($)

PF

RF

SR

Equity DD (%)

D1

2687

1.65

1.41

0.23

13.87

H4

270

1.02

0.10

0.02

23.99

H1

105

1.00

0.06

0.01

16.31

M15

-8892

0.85

-0.99

-0.03

98.67

TF : Time Frame; P/L : Profit/Loss; PF : Profit Factor; RF :Recovery Factor; SR : Sharp Ratio; DD : Drawdown

 

2 – Optimization (genetic algorithm) for maximum balance (according to the parameters that give the maximum profit).

 

Figure 8 : Time frame = Daily

 

Figure 9 : Time frame = Daily. Parmètres de la première ligne de figure 2 = (20, 1.8)

 

Figure 10 : Time frame = H4

 

Figure 11 : Time frame = H1

 

Figure 12 : Time frame = M15

 

Conclusion

The goal of the first backtest is to compare these two strategies based on Bollinger Bands. Using the default settings (20, 2.0), produces $ -210 for the first strategy and $ 2687 for 2nd. The optimization works better for the second strategy in all time frames; ($ 4335, $ 4689, $ 3431, $ 2801) versus ($ 1054, $ 1551, $ 930, $ 226). We can say that the strategy of the breakout of Bollinger Bands is definitely better than the bounce on the bands. At least it was during the period 2008-2011 for the EURUSD.

 

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