Bollinger Bands – 3-Phase Model | Trading Strategy (Setup)

I. Trading Strategy

Developer: John Bollinger (Bollinger Bands®). Concept: Trend-following based on Bollinger Bands. Research Goal: Performance of the 3-phase model (long/short/neutral). Specification: Table 1. Results: Figure 1-2. Trade Setup: Long Trades: Close[i − 1] > Upper_Band[i − 1]. Short Trades: Close[i − 1] < Lower_Band[i − 1]. 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: 33 years since 1980. Testing Platform: MATLAB®.

II. Sensitivity Test

Bollinger Bands: Setup (Definitions: Table 1):


Figure 1 | Portfolio Performance (Inputs: Table 1; Commission & Slippage: $0). PDF (738 KB)

STRATEGY
SPECIFICATION PARAMETERS
Auxiliary Variables: MA(Close, MA_Length) is a simple moving average of the close price over a period of MA_Length.
Std(MA_Length) is a standard deviation over a period of MA_Length.
St_Dev is a number of standard deviations to include in the envelope.
Upper_Band[i] = MA[i] + St_Dev * Std[i]
Lower_Band[i] = MA[i] − St_Dev * Std[i]
Index: i ~ Current Bar.
MA_Length = [10, 200], Step = 5;
St_Dev = [0.0, 3.0], Step = 0.1;
Setup: Long Trades: Close[i − 1] > Upper_Band[i − 1]
Short Trades: Close[i − 1] < Lower_Band[i − 1]
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 open is placed if Close[i − 1] < MA[i − 1]. Short Trades: A buy at open is placed if Close[i − 1] > MA[i − 1].
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_Length = [10, 200], Step = 5
St_Dev = [0.0, 3.0], Step = 0.1
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; 33 years (1980/01/01−2013/05/31)

Table 1 | Specification: Trading Strategy.

III. Sensitivity Test with Commission & Slippage

Bollinger Bands: Setup (Definitions: Table 1):


Figure 2 | Portfolio Performance (Inputs: Table 1; Commission & Slippage: $100 Round Turn).

IV. Rating: Bollinger Bands – 3-Phase Model | Trading Strategy

A/B/C/D

Related Entries: Combined Donchian Channels (Entry & Exit) | Bollinger Bands %b (Setup) | Bollinger Bands %b (Setup & Filter) | Dow Theory – Trend (Entry & Exit)
Proprietary Strategies: ALPHA20TM Trading System | Robust Short-Term PatternsTM
Related Topics: (Public) Trading Strategies

Codes: matlab/bollinger/trend-following/

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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