Bollinger Bands

Bollinger Bands Trading

Bollinger Bands measure volatility and identify potential reversals and breakouts.

Components

Band Width = (Upper - Lower) / Middle * 100

Signals

Mean Reversion (Range Trading)

• A band tag is descriptive, not a reversal signal.
• Define regime, %b/distance, objective reversal trigger, invalidation, and middle-band target before testing.
• Calibrate any RSI or candlestick filter; both are derived from the same price history.

Bollinger Squeeze (Breakout)

• Define a squeeze by rolling bandwidth percentile within the same instrument/session.
• A squeeze indicates low relative volatility, not that a breakout is imminent or directional.
• Test closed-band exit, retest, and volume rules with a fixed horizon.

Band Riding (Trend Trading)

• Uptrend: price hugs upper band, pullbacks to middle band are entries
• Downtrend: price hugs lower band, rallies to middle band are entries

W-Bottom / M-Top

• W-Bottom at lower band = bullish reversal
• M-Top at upper band = bearish reversal

Workflow

1. Get Bollinger Bands:

   get_indicators(indicator_code="bbands", symbol=<symbol>, exchange=<exchange>, interval=<interval>)
   

2. Calculate Band Width: (Upper - Lower) / Middle * 100

   • Report rolling percentile and historical sample; do not use universal percentage cutoffs.

3. Confirm with RSI:

   get_indicators(indicator_code="rsi", symbol=<symbol>, exchange=<exchange>, interval=<interval>)
   

4. Identify setup: band edge + reversal candle → mean reversion; squeeze + volume → breakout

5. Mark on chart:

   draw_chart_analysis(action="create", drawing={
       "type": "highlight",
       "points": [
           {"time": <start_time>, "price": <upper_band>},
           {"time": <end_time>, "price": <lower_band>}
       ],
       "options": {"text": "BB Squeeze (Width: 1.8%)"}
   })
   

Evidence and Validation

• Treat the setup as a testable hypothesis, not a prediction. Define thresholds, entry, invalidation, and exit before evaluating outcomes.
• Calibrate on the same instrument, venue, session, and timeframe. Use closed candles and a held-out or walk-forward sample; record every variant tried.
• Include spread, fees, slippage, borrow or funding, partial fills, and latency. Reject the setup when net expectancy is not positive or depends on one narrow parameter.
• Return observed inputs, missing data, cost assumptions, entry, invalidation, exit, and a valid, watch, or no-trade status.
• Research basis: John Bollinger's 22 rules state that band tags are not signals and outside closes are initially continuation—not reversal—signals.

Key Rules

• Treat band expansion as a regime feature and test mean reversion/continuation separately.
• Never enter on a band tag alone; apply the predeclared price trigger.
• Define squeezes by an instrument-specific rolling percentile.
• Treat 20/2 as a conventional starting specification; record every lookback/multiplier tried.
• Per Bollinger's rules, an outside close is initially continuation information, not automatic reversal.

Related Skills

• mean-reversion — adds z-score and RSI frameworks to BB touch signals
• market-regime-detection — BB Width is a key volatility input for regime classification