Bollinger Band Mean Reversion with Trend and Cost Filters
Summary
This strategy uses a moving average as the Bollinger Band center and offsets upper and lower bands by a chosen multiple of recent price standard deviation. It buys when the close falls below the lower band and exits the long position when price rises above the upper band. The documented defaults use a 20-period basis and a two-standard-deviation multiplier, with several moving-average types available.
The accompanying discussion frames band extremes as potential mean-reversion opportunities and suggests trend or volatility filters, parameter evaluation, transaction-cost modeling, and position sizing as possible refinements. Published backtest settings specify BTC/USDT futures and a date range, but no performance statistics are supplied. The code shown only opens long positions; despite the broader description of shorting upper-band touches, it closes longs there and does not enter a short. Band crossings can persist during strong trends, and the normal-distribution intuition behind a two-standard-deviation range does not guarantee price reversals. Results may also be affected by parameter choices and omitted spreads and commissions.
Key ideas
- The center band is a selected moving average, while the outer bands use a multiple of price standard deviation.
- A close below the lower band triggers a long entry in the example code.
- A close above the upper band closes the example's long position; it does not open a short.
- Persistent trends can produce losses for a strategy that assumes prices will revert toward the mean.
- Evaluation should account for parameter sensitivity, market filters, and trading costs.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.