Bollinger Band and RSI Mean Reversion with Fixed Risk Limits

Summary

This mean-reversion system combines Bollinger Bands with RSI to seek reversals after prices reach extremes. It describes a long entry when price crosses back above the lower band while RSI is below the oversold threshold, and a short entry when price crosses below the upper band while RSI is above the overbought threshold. The bands use a moving-average center and standard-deviation distance; the default settings and RSI thresholds are specified in the document.

Risk controls use a fixed percentage stop and a take-profit target twice as large, while the source also permits disabling either control. A published hourly ETH-USDT futures test period is provided, but no results or performance statistics appear. The document warns that the approach can produce false reversals in trends or low-liquidity conditions, that fixed stops may not fit changing volatility, and that parameter selection matters. Its claim that a win rate above 50% can be profitable with a two-to-one target-to-risk ratio overlooks costs and the exact payoff distribution; backtesting and forward testing are recommended.

Key ideas

• Bollinger Bands mark price extremes relative to a moving average and recent standard deviation.
• RSI thresholds filter entries that cross back inside the bands after reaching an extreme.
• The described fixed stop and target use a two-to-one reward-to-risk relationship.
• Mean-reversion signals can repeatedly lose in strong trends and can be sensitive to parameters and volatility.
• The provided futures test setup includes no performance results, so it does not establish profitability.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.