How the Bollinger Band mean reversion strategy works
Bollinger Bands put a band two standard deviations above and below a 20-period moving average. When price closes back inside the lower band after a sharp drop, the move is often stretched and may snap back to the average.
Rules
- Buy when the close crosses back above the lower band.
- Exit when the close reaches the middle band (SMA 20), or at a 6% stop-loss.
For a breakout version instead, buy when the close crosses above the upper band and exit below the middle band.
Backtests use historical data and simplified fills. Past performance does not guarantee future results. Education only — not investment advice.