Bollinger Bands plot an average with upper and lower bands based on recent dispersion. They describe relative price and volatility conditions; a touch is not automatically an entry signal.

Understand the Inputs

A common configuration uses a 20-period simple moving average with bands two standard deviations away. These are adjustable defaults, not settings shown to work best for every instrument. Check the selected price source and implementation.

The bands are not a guarantee that 95% of future prices will remain inside. John Bollinger's own rules caution against that statistical assumption and against treating a band tag alone as a trade signal.

Two Different Hypotheses

A bounce approach looks for a return from an outer band toward the average. Define the entry observation, exit, maximum hold and loss limit. Price can continue along a band or move farther away; labelling a chart range-bound after seeing a successful bounce introduces hindsight.

A squeeze approach identifies relatively narrow bands and tests for subsequent expansion. Specify the width measure and lookback before inspecting outcomes. Narrow bands do not establish the direction or timing of a large move, and quiet conditions can persist.

Do Not Let a Moving Band Expand Risk Unnoticed

Suppose a long trade enters at $50 and its planned stop trigger is $49.50. If the lower band later falls to $49, moving the same-size stop there doubles planned price distance from $0.50 to $1 per share. The indicator changed; your account budget did not automatically change with it.

Specify whether an exit level is fixed at entry or updated under a separate rule. Actual fills can still exceed planned loss.

Test Additional Filters Separately

RSI, MACD and the bands all use price history. Agreement among them is not three independent confirmations. Compare a proposed combined rule with the base rule after costs and include the opportunities the added filter removes.

Keep closed-bar timing explicit and save the indicator values known at entry. A backtest that uses a bar's final band value to enter earlier in that same bar can use unavailable information.

There is no universal reliable timeframe or best parameter pair. Start with the calculation and evaluation process and treat changes as new strategy versions.

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