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The Bollinger strategy uses the Bollinger Bands indicator to initiate buy and sell orders. Bollinger Bands is a technical analysis indicator that was invented in the 1980s by John Bollinger. It consists of three lines:
- Upper Band: Used as a resistance line
- Lower Band: It is a moving average
- Middle Band: Uses as a support line
The strategy enters long when the price crosses above the lower Bollinger Band or the middle band.
It generates a sell order (exit) when the price crosses below the upper Bollinger Band or the middle band.
The strategy was backtested using Nasdaq 100 stocks and it has a good Sharpe ratio.
The trading system has no money management rules and stop orders defined. Different parameters, such as the Bollinger Band period, number of stocks in portfolio, can be optimized to further improve the strategy's return.
Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
