Double Bollinger Band Corridors for Trend Following

Summary

This document describes a corridor approach built from two Bollinger Band envelopes: inner bands at one standard deviation and outer bands at two standard deviations around a 20-period exponential moving average. It presents the indicator as applicable to forex and potentially other assets. The outer and inner bands define upper and lower corridors, with the area between them treated as neutral.

The proposed rules buy when a close enters the upper corridor and sell when a close enters the lower corridor, aiming to follow the prevailing trend. A position is exited when a close reaches the opposite corridor. The document offers an indicator formula but no backtest, performance data, or detailed order and risk rules. It warns that trend systems can perform poorly in sideways markets, so the method's effectiveness and suitability require independent evaluation.

Key ideas

• The indicator plots inner and outer Bollinger bands around a 20-period exponential moving average.
• The inner bands use one standard deviation, while the outer bands use two.
• Upper and lower corridors provide directional entry signals, with the space between them treated as neutral.
• A position is closed when price reaches the corridor on the opposite side.
• The approach is trend-oriented and may be unproductive in sideways markets.

Tags

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