Bollinger Bands Strategy with Intraday Intensity Index

For Educational Purposes. Results can differ on different markets and can fail at any time. Profit is not guaranteed.

This only works in a few markets and in certain situations. Changing the settings can give better or worse results for other markets.
This is a mean reversion strategy based on Bollinger Bands and the Intraday Intensity Index (a volume indicator). John Bollinger mentions that the Intraday Intensity Index can be used with Bollinger Bands and is one of the top indicators he recommends in his book. It seems he prefers it over the other volume indicators that he compares to for some reason. III looks a lot like Chaikin Money Flow but without the denominator in that calculation. On the default settings of the BBs, the III helps give off better entry signals. John Bollinger however is vague on how to use the BBs and it's hard to say if one should enter when it is below/above the bands or when the price crosses them. I find that with many indicators and strategies it's best to wait for a confirmation of some sort, in this case by waiting for some crossover of a band. Like most mean reversion strategies, the exit is very loose if using BBs alone. Usually the plan to exit is when the price finally reverts back to the mean or in this case the middle band. This can potentially lead to huge drawdowns and/or losses. Mean reversion strategies can have high win/loss ratios but can still end up unprofitable because of the huge losses that can occur. These drawdowns/losses that mean reversion strategies suffer from can potentially eat away at a large chunk of all that was previously made or perhaps up to all of it in the worst cases, can occur weeks or perhaps up to months after being profitable trading such a strategy, and will take a while and several trades to make it all back or keep a profitable track record. It is important to have a stop loss, trailing stop, or some sort of stop plan with these types of strategies. For this one, in addition to exiting the trade when price reverts to the middle band, I included a time-based stop plan that exits with a gain or with a loss to avoid potentially large losses, and to exit after only a few periods after taking the trade if in profit instead of waiting for the price to revert back to the mean.
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In case I wasn't too clear, be careful when you use this strategy for trading. It's mostly to prove a point on how high accuracy can still lead to bad results. The fact that it looks like it works well on S&P could be just coincidence. TV is strict about fudging with the strategy defaults but if you start the backtest from a more recent date such as the year 2000 and up then you'll see worse results. BBs can be tricky, same with a lot of mean reversion strategies out there. I tried gathering as much as I could from John Bollinger's book on one would go about trading using BBs and this was my shot at it.
+1 Phản hồi
Pratik_4Clover SparkyFlary
@SparkyFlary, Imo, no one should really trust TV backtests anyways. Don't put any money on it till you see this setup working in live market for a month or two.
+1 Phản hồi
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