Bollinger Band Mean Reversion with EMA Targets and Wider Stops

Summary

This mean-reversion strategy enters when price closes beyond an entry band set at a configurable number of standard deviations from a simple moving average. It buys below the lower band and sells short above the upper band. A wider band, using a second standard-deviation multiplier, defines the stop level, while a period-matched exponential moving average serves as the exit target. The described defaults are a 20-period basis, entry multiplier of two, stop multiplier of three, and position size of ten percent of equity; the rules permit only one open direction at a time.

The published settings show a short test on BTC/USDT futures using two-day bars, with a stated commission assumption, but provide no reported return or drawdown results. The document cautions that prices can continue trending away from the mean, and flags transaction costs, liquidity, parameter sensitivity, and overfitting as concerns. The strategy code includes performance plots, but such tracking does not establish profitability. Trend filters, out-of-sample checks, adaptive bands, and volatility-aware sizing are proposed as further work rather than demonstrated improvements.

Key ideas

• Entries occur when closing price crosses beyond a Bollinger-style band defined by a standard-deviation multiplier.
• A wider band sets the stop, while an EMA provides the mean-reversion exit target.
• The rules use a fixed share of equity per trade and allow only one directional position at a time.
• The listed BTC/USDT futures test is brief and reports no performance statistics, so it does not demonstrate profitability.
• Strong trends, execution costs, liquidity, and parameter overfitting can undermine the mean-reversion assumption.

Tags

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