Bollinger Bands and Prior High-Low Breakouts for Reversal Trades

Summary

This strategy pairs Bollinger Bands with breaks of the prior candle’s high or low. It uses a 20-period simple moving average and bands set two standard deviations away. A long signal occurs when the current high crosses above the previous high while that prior high was below the lower band; a short signal mirrors this condition around the upper band and prior low. The stop is placed at the opposite extreme of the previous candle, and the target is set at a distance equal to the entry risk, giving a stated 1:1 risk-reward ratio.

The document frames the rules as combining breakout behavior with mean-reversion context and notes that the system plots key price levels. Its published backtest configuration is for BTC/USDT futures on a two-day interval across a multi-year period, but no return, drawdown, trade count, or cost-adjusted result is reported. The document flags transaction costs, false breaks in ranges, fixed band settings, and the possibility that a fixed target misses stronger trends. Volume confirmation, volatility-adjusted bands, trend and time filters, and adaptive targets are suggested as potential refinements.

Key ideas

• A long signal requires a break above the previous high after that high was below the lower Bollinger Band.
• A short signal requires a break below the previous low after that low was above the upper Bollinger Band.
• Stops use the prior candle’s opposite extreme, while targets are set at an equal distance to risk.
• The stated Bollinger Band settings use a 20-period average and two standard deviations.
• The document supplies a backtest configuration but no performance statistics, and it notes cost and false-break risks.

Tags

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