Bollinger Extreme System
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  1. #1
    monstapips is offline Junior Member
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    Default Bollinger Extreme System

    Bollinger – Extremes Reversion to the Mean System

    This is a system that I back tested on EUR/JPY before, but I lost all my statistics when my computer died

    Anyway, the basic premise of the system is that it tries to pick tops and bottoms by buying / selling whenever price is in between the 2.5 and 3.0 Standard deviation Bollinger Bands. My understanding of Bollinger Bands is that once price touches those lines, it means that price has hit an “extreme” and there is a good chance that it will revert back to the middle.

    Just so you know, the returns when I tested it on EUR/JPY were quite volatile. There were some years where it did well, and others that well, it sucked.

    Now that I have no more data, I’ve decided to begin back testing this system on other pairs and see how I can improve it. It’s a longer term system (based on the daily) so I should be able to get about a decade’s worth of data per pair.

    Indicators
    Bollinger Band (SD 2.5, length 20, simple) (blue)
    Bollinger Band (SD 3.0, length 20, simple) (red)
    ATR (length 20) – I use this to help me calculate the stop
    20 SMA – basically the middle of the bands
    Daily Chart

    Entry and exit

    It’s a very simple long term system. I buy (sell) whenever the daily candle closes in between the 2.5 and 3.0 Bollinger Bands. My first take profit point is the middle of the bands (20 SMA). One the first TP is hit, I move my stop to breakeven and let the 2nd position run. My second take profit point is the opposite 2.5 Bollinger band.

    I’ve adjusted the stop loss to be equal to 1.5 times the average daily ATR of the day when you entered the trade. I used to use a strict 150 pip stop when I was backesting for EUR/JPY, but lets see how this works.

    Here's a sample of both a long and a short signal



    Limitations:

    I HAVE NOT backtested for AUD/USD. I know that there are still a lot of tweaks that need to be made for this system. Also, I'm still figuring out how to put this on mt4, but it doesn't seem to let me make the SD 2.5.

    If you have any suggestions, please let me know! I'm just going through different systems right now, trying to see what works for me and what doesn't.

  2. #2
    MaryJ is offline Newbie
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    Hi Monstapips. I have seen something similar to this previously and there is an indicator out there for mt4 which is called 'Bands' if you just do a google search for it. You can change the deviation to 2.5 or 2.0 or whatever whereas the Bollinger Band indicator on the mt4 won't allow it.

    Good luck and I will be interested to see other members input.

  3. #3
    monstapips is offline Junior Member
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    Mary J

    Thanks for the tip! I'll take a look and see how it works!

  4. #4
    MaryJ is offline Newbie
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    Hey Monstapips.

    Your thread has prompted me into looking at Bollinger Bands again. There is a pdf floating around called 'Bollinger Bands on Steroids' - I found it while googling Bollinger Bands. I think you will find the settings there and the explanation.

    The settings I ended up with were: 20 and deviation 2.0 for 1st then 20 and deviation of 1.5 but I guess it really depends on the Currency pair. The last couple of days I have demo traded with that and ended up with quite a few pips (haven't added them up yet).

    Will have to wait a while to see how it goes I might be 'just lucky'...... you know how it is with forex.

    I traded GBPJPY EURJPY EURUSD GBPUSD so it looks to be reasonably tradeable over a few pairs at least.

    Hope you found the indicator OK
    Last edited by MaryJ; 06-23-2011 at 04:14 PM.

  5. #5
    peterwest is offline Newbie
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    I've tried using BB systems before. How do you get a certain entry that reverses and doesn't keep going the original way?

  6. #6
    MaryJ is offline Newbie
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    I am pretty new to using BB as I tried it a while ago then gave up but have gone through the process of trying everything and sticking at nothing.

    The success I have achieved over the last couple of days mentioned in my previous post was due to trading the higher time frames. So to answer your question peterwest – observe the higher time frames. As for precise entry I am not so good at that yet but I guess we need to wait for a time frame of perhaps 1 hour or 4 hour to retrace then continue in direction of trend.

    Watching the behavior of the Monthly and Weekly charts I noticed that the price often retraces once it hits the center line (moving average). Most often if it is in the channel (having left the outside Bands) it will go as far as the center line(my theory only – check past history for yourself) therefore I noticed the GBPUSD monthly chart is heading down toward the center line.

    I based my trades on this and my first GBPUSD winning trade netted me 55 pips & third 70 pips. Since I am not a seasoned trader I decided to take the profit as I wasn’t so sure of my prediction. My second trade with GBPUSD sustained a 2 pip loss. If I had have stayed in I would have been in profit. After re assessing the charts I went in again for the 70 pip gain mentioned above. Now when I look at it and if I trusted my analysis the first trade would now be 198 pips profit at this moment.

    EURUSD is in a similar situation at the moment and made another 55 pips with that.
    AUDUSD I traded against the trend on 4 hour chart thinking it would go top of BB but it reversed after it had closed quite high through it. So I have made some losses but need to focus on trading the direction of trend and trust myself more. Eventually I want to be able to stay in trade for several days.

    I entered AUDCAD and closed it out with about a 1 pip profit as I felt uncertain. On checking the charts later I would have made a healthy 54 pips.

    Sorry for being so long winded but it just gives some idea of somewhere to start and possibilities.

    I have much to learn and would love to hear other suggestions.
    Last edited by MaryJ; 06-26-2011 at 11:19 PM.

  7. #7
    MaryJ is offline Newbie
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    Sorry Monstapips didn't mean to take over your thread.

    I was wondering if you compare timeframes or do you just rely on the bollinger band action in the one time frame?

  8. #8
    S1L1K0N's Avatar
    S1L1K0N is offline Junior Member
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    I've set this up on a demo account and we'll see what happens. I live in the Central time zone, so the EU and London market openings occur when I'm sleeping; need something that's more longer term where I can just check in from day to day.

  9. #9
    monstapips is offline Junior Member
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    MaryJ,

    I actually just created that system using a longer time frame. I wanted it to be purely mechanical, which meant I wouldn't be going through different time frames. However, after reading your post, I'm gonna start reading that pdf you mentioned and I'm also gonna give it a try looking through different time frames.

    Just to be clear, you are using the BBs to help find tops and bottom and the overall trend?

    Regarding the middle line, when I was backtesting the old system, I found that it would serve as a good support / resistance point, so that's why I made it the first TP point. Someone advised me to try and maximize the trade signals by adding to my position, but I'm still working on that.

    I might also try to develop a system that is based on a shorter time frame.

  10. #10
    monstapips is offline Junior Member
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    Quote Originally Posted by S1L1K0N View Post
    I've set this up on a demo account and we'll see what happens. I live in the Central time zone, so the EU and London market openings occur when I'm sleeping; need something that's more longer term where I can just check in from day to day.
    Which time frame are you currently looking at? My system is based on the daily, so you only really need to check every once in awhile. haha

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