Trading Strategies Revealed – “Bollinger Bands Breakout” review

Trading strategy “Bollinger Bands Breakout” is designed mainly for Forex and can be used on all currency pairs on any time frames.

How to trade Bollinger Bands breakout

A trader should open a sell trade when price breaks through the upper band and a buy trade when price breaks through the lower band.

Initial back-test

To run a back-test we have coded a complete Bollinger Bands Breakout trading strategy as a MetaTrader 4 Expert Advisor. During preliminary analysis we have identified that the best time frame for Bollinger Bands Breakout trading strategy is 1 hour (H1). We have run a back-test of Bollinger Bands Breakout strategy. For our test as a trade exit rule we have used a Trailing Stop of 56 pips which is launched after a trade has started and is modified each new 1 pip of profit. From our point of view, such approach allows to maximize profit and minimize drawdown.

We have run the test for 2009.01.01-2019.11.11 using Every Tick modelling on EURUSD-H1, using 1:7 leverage, without reinvestment, assuming spread equals 10 ticks. These are the main parameters of Bollinger Bands Breakout trading strategy performance at its non-optimized state:
ROI# of tradesWinning ratioMax. drawdown
800.71%897235.78%26.98%

Trading data analysis

After running the initial test of a simple non-filtered strategy we perform a trading data analysis that allows to identify possible filters to use to make the strategy more profitable reducing the drawdown simultaneously.

The following charts may give some possible insights on which filters to apply (time sessions, day of week limitation, trend strength threshold, overbought/oversold conditions, volatility range) to turn this strategy profitable should you decide to use this strategy in your investment portfolio:


Optimization

Bollinger Bands Breakout can be used with other indicators to filter out losing trades and make entry signals more accurate. After analysing trading data we have found the following insights which have helped us to increase the profitability of Bollinger Bands Breakout trading strategy in 2 times reducing it’s drawdown in 2.5 times:

  1. Most Trades that were opened at too high and too low values of RVI were more losable when trading “Bollinger Bands Breakout” trading strategy during 2009 – 2019. It is preferred to take trades at more stable market. (ROI increase 80% -> 150%, Drawdown reduction 27% ->13%)
  2. Buy Trades that were opened at higher value of Stochastic brought more losses when trading “Bollinger Bands Breakout” trading strategy during 2009 – 2019.  It is unreasonable to take buy trades at overbought zone of stochastic. (ROI increase 80% -> 146%, Drawdown reduction 27% ->20%)
  3. Sell trades that were opened at too low value of ADX appeared to be more losable when trading “Bollinger Bands Breakout” trading strategy during 2009 – 2019. ADX shows the power of trend. (ROI increase 80% -> 105%)

Optimization results

We have analysed data received from a test of Bollinger Bands Breakout trading strategy during 2009 — 2019 years and applied some filters such as RVI, Stochastic and ADX. As a result, the profitability of the strategy has increased from 80.07% up to 188.96% and it’s drawdown has reduced from 26.98% to 11.86% using leverage 1:7.

Post-optimization back-test

Reducing the drawdown more than 2 times has allowed us to use risk based lot calculation. Below you can see the back-test results using $10,000 initial balance and 1% risk per trade:

ROI# of tradesWinning ratioMax. drawdown
20816.20%531136.67%29.69%

Analyze your trading strategy!

If you have a trading strategy that you want to analyse, optimize and increase its profitability (or even turn it from losing into a profitable Forex trading strategy) – feel free to contact us! Our trading data analysis team will respond to you within 24 hours clarifying all the details needed.

Our company specializes on automated trading systems and trading indicators development for the most popular trading platforms, such as MetaTrader 4/5, NinjaTrader 7/8 and cTrader.

If you need your own automated trading software designed based on your individual requirements, make a request for a free consultation with our team of professional programmers and find out the cost and terms of your project development.

More detailed info about our services for particular trading platform you can get at the following pages of our web-site:

MetaTrader 4/5 https://nordman-algorithms.com/metatrader-programming
NinjaTrader https://nordman-algorithms.com/ninjatrader-programming
cTrader https://nordman-algorithms.com/ctrader-programming

Disclaimer: Hypothetical or Simulated performance results have certain limitations, unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity.

Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown.

Past performance is not necessarily indicative of future results. The customer is responsible for using the product at his or her own risk and “Nordman Algorithms” is not responsible for any possible losses caused by use of the product, including but not limited to losses.