Bollinger Bands %b | Trading Strategy (Setup & Filter)

I. Trading Strategy

Developer: Connors Group. Concept: Mean-reversion trading strategy based on Bollinger Bands. Research Goal: Performance of the pattern setup and trend filter. Specification: Table 1. Results: Figure 1-2. Trade Setup: Long Trades: (Close[i − 1] > MA_Trend[i − 1]) & (%b[i − 1] < 0.2) & (%b[i − 2] < 0.2) & (%b[i − 3] < 0.2). Short Trades: (Close[i − 1] < MA_Trend[i − 1]) & (%b[i − 1] > 0.8) & (%b[i − 2] > 0.8) & (%b[i − 3] > 0.8). Index: i ~ Current Bar. Trade Entry: Long Trades: A buy at open is placed after a bullish Setup. Short Trades: A sell at open is placed after a bearish Setup. Trade Exit: Table 1. Portfolio: 42 futures markets from four major market sectors (commodities, currencies, interest rates, and equity indexes). Data: 32 years since 1980. Testing Platform: MATLAB®.

II. Sensitivity Test

Bollinger Bands %b Setup & Trend Filter (Definitions: Table 1):


Figure 1 | Portfolio Performance (Inputs: Table 1; Commission & Slippage: $0).

STRATEGY
SPECIFICATION PARAMETERS
Auxiliary Variables: MA_Trend(Close, MA_TrendLength) is a simple moving average of the close price over a period of MA_TrendLength. The default value for MA_TrendLength is 200.
MA(Close, MA_Length) is a simple moving average of the close price over a period of MA_Length. The default value for MA_Length is 5.
Std(MA_Length) is a sample standard deviation over a period of MA_Length.
St_Dev is a number of standard deviations to include in the price envelope. The default value for St_Dev is 1.
UpperBand[i] = MA[i] + St_Dev * Std[i].
LowerBand[i] = MA[i] − St_Dev * Std[i].
%b[i] = (Close[i] − LowerBand[i]) / (UpperBand[i] − LowerBand[i]). The lower the %b is, the more “oversold” the market is relative to recent history. The higher the %b is, the more “overbought” the market is relative to recent history.
Index: i ~ Current Bar
MA_TrendLength = [80, 250], Step = 5;
MA_Length = [5, 60], Step = 1;
St_Dev = 1;
Setup: Long Trades: (Close[i − 1] > MA_Trend[i − 1]) & (%b[i − 1] < 0.2) & (%b[i − 2] < 0.2) & (%b[i − 3] < 0.2).
Short Trades: (Close[i − 1] < MA_Trend[i − 1]) & (%b[i − 1] > 0.8) & (%b[i − 2] > 0.8) & (%b[i − 3] > 0.8).
Index: i ~ Current Bar
Filter: N/A
Entry: Long Trades: A buy at open is placed after a bullish Setup.
Short Trades: A sell at open is placed after a bearish Setup.
Exit: Trend Exit: Long Trades: A sell at close is placed after %b > 0.8. Short Trades: A buy at close is placed after %b < 0.2.
Stop Loss Exit: ATR(ATR_Length) is an Average True Range over a period of ATR_Length. ATR_Stop is a multiple of ATR(ATR_Length). Long Trades: A sell stop is placed at [Entry − ATR(ATR_Length) * ATR_Stop]. Short Trades: A buy stop is placed at [Entry + ATR(ATR_Length) * ATR_Stop].
ATR_Length = 20;
ATR_Stop = 6;
Sensitivity Test: MA_TrendLength = [80, 250], Step = 5
MA_Length = [5, 60], Step = 1
Position Sizing: Initial_Capital = $1,000,000
Fixed_Fractional = 1%
Portfolio = 42 US Futures
ATR_Stop = 6 (ATR ~ Average True Range)
ATR_Length = 20
Data: 42 futures markets; 32 years (1980/01/01−2011/12/31)

Table 1 | Specification: Trading Strategy.

III. Sensitivity Test with Commission & Slippage

Bollinger Bands %b Setup & Trend Filter (Definitions: Table 1):


Figure 2 | Portfolio Performance (Inputs: Table 1; Commission & Slippage: $50 Round Turn).

IV. Rating: Bollinger Bands %b | Trading Strategy

A/B/C/D

Related Posts: Bollinger Bands %b (Setup)
Proprietary Strategies: ALPHA20TM Trading System | Robust Short-Term PatternsTM
Related Topics: (Public) Trading Strategies

Codes: matlab/connors/%b/

CFTC RULE 4.41: HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

RISK DISCLOSURE: U.S. GOVERNMENT REQUIRED DISCLAIMER | CFTC RULE 4.41

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