Stock Predictor trading strategy

Bollinger Bands

Bollinger Bands are drawn d standard deviations above and below an m-day moving average of the price. They form a channel that widens when volatility rises and narrows when it falls.

Strategy group

Price, volatility and time filters

Based on

Bollinger Bands

Typical parameters

m = 14 days, d = 2 deviations

The strategy assumes that a stock touching the lower band is usually oversold and a stock touching the upper band is likely to be overbought. It buys when the price crosses the lower band and sells when it crosses the upper band.

Trading signals

• Buy when the price falls to or below the lower band.
• Sell when the price rises to or above the upper band.

Strategy rules

IF C(t) >= BBUPPER(m, d)
   THEN GO SHORT
ELSE IF C(t) <= BBLOWER(m, d)
   THEN GO LONG

Where BBUPPER and BBLOWER are the upper and lower Bollinger Bands, m is the number of averaging periods, d the number of standard deviations and C(t) the price.

See also: how the Bollinger Bands indicator is calculated.