Bollinger Band and RSI Mean Reversion with VWMA Filtering
Summary
This short-term mean-reversion system combines Bollinger Bands, a 5-period RSI, and a 50-period volume-weighted moving average (VWMA). Strict long entries require oversold RSI and price below the lower band while remaining above VWMA; strict shorts use the opposite setup. More permissive entries use RSI thresholds of 30 and 70 with intermediate band levels. The document describes a 20-period band with 2.5 standard deviations, percentage-based targets, and volatility-sensitive stops capped by a stated price-movement limit.
The VWMA is intended to filter trades against strong trends, while RSI and band conditions identify price extremes. The write-up also proposes separate risk settings for strict and aggressive entries. It gives no measured backtest results, and its claims about stability and signal quality are not supported by performance data. Risks include persistent trends that defeat mean reversion, excess turnover and trading costs, and false signals from aggressive entries. The stop logic and instrument-specific price-unit cap should be validated for the market and implementation in use.
Key ideas
- The system seeks reversion after price reaches an outer Bollinger Band with an extreme RSI reading.
- VWMA acts as a directional filter for both long and short setups.
- Strict and aggressive entry modes use different signal thresholds and risk settings.
- Stops combine volatility-sensitive distances with fixed percentage and maximum-distance rules.
- Trading costs and persistent trends can undermine the strategy, and the document provides no performance results.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.