Bollinger-Style Mean Reversion with SMA and Deviation Bands

Summary

This strategy uses a simple moving average as a reference level and standard deviation bands to identify prices that have moved unusually far from that average. It opens a long position when price crosses below the lower band and a short when price crosses above the upper band, then exits when price crosses the SMA. The documented defaults are a 20-period average and a 1.5 standard-deviation multiplier.

The document explains the signals and suggests selecting markets and timeframes with mean-reverting behavior. It also describes tuning the lookback and band width, adding trend or volatility filters, and accounting for trading costs and risk controls. The supplied backtest configuration specifies BTC/USDT futures over a short period in May 2024, but no performance results are reported. The central assumption that prices will return to their mean can fail during persistent trends or extreme moves; parameter choices can also produce too many or too few trades. The entry descriptions and source logic differ in whether a band crossing or a move beyond a band triggers the trade, so implementation details need care.

Key ideas

• The SMA and standard deviation define upper and lower reference bands.
• The strategy enters long below the lower band and short above the upper band, with exits at the moving average.
• Mean reversion may fail when a market trends or experiences extreme volatility.
• Trend filters, volatility adjustments, transaction costs, and risk controls are suggested for further evaluation.

Tags

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