Insights on Bollinger Bands in the USD-BTC market

[Superalgos]

A group of friends and I have been working on a strategy purely based on the Bollinger Bands.

This indicator is used to asses relative high/low prices, and along with it's Moving Average (MA) and derived indicators such as Percentage Bandwidth (%B), can offer a level of analysis in terms of trends and momentum.

We believe that we may have produced a breakthrough in the sense that we identified a set of conditions that together with a break down of the Bollinger Bands may predict a trend reversal with around 85% accuracy (according to extensive backtests and limited live trading history).

The unusual thing here is that it is generally accepted that a break of the Bollinger Bands is not a reversal signal.

I wonder how other traders here may be using the Bollinger Bands, in particular on the USD-BTC market... Anyone care to share?

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[adroitful_one]

I use Bollinger bands to give me a good idea of when to buy or sell. Depending on which chart you're using, you could probably use it as a trend reversal indicator. For instance, if I'm not in that much of a hurry to get an instant trade in, I'll look at the 24 hour chart. If the candles are above the top line, it's time to sell. If the candles are below the bottom line, it's a good indicator that it's time to buy. But, I also use the RSI to verify that. I think if you did this on the weekly chart or even monthly, it would probably be able to indicate a trend reversal, but I've never really tested this theory.

[Superalgos]

I use Bollinger bands to give me a good idea of when to buy or sell. Depending on which chart you're using, you could probably use it as a trend reversal indicator. For instance, if I'm not in that much of a hurry to get an instant trade in, I'll look at the 24 hour chart. If the candles are above the top line, it's time to sell. If the candles are below the bottom line, it's a good indicator that it's time to buy. But, I also use the RSI to verify that. I think if you did this on the weekly chart or even monthly, it would probably be able to indicate a trend reversal, but I've never really tested this theory.

So you are using a break of the upper and lower bands in the 24-hours chart as an indication of overbought and oversold conditions respectively, right?

We have this strategy whose goal is to accumulate bitcoin, going short when price starts decreasing and reburying when price stabilizes.

The main trading idea behind the strategy is to identify short-term reversals as well as continuations and deepening of trends marked by a break down of the Bollinger Bands (BB) in the 1-hour chart, using the Percentage Bandwidth (%B) indicator, the Bollinger Bands Moving Average (BB MA) and the Bollinger Band deviation to assess momentum and volatility, optimize the take position event, and filter out late entries.

In order for a break down at the 1-hour chart to signal a reversal, several other conditions must be met:

1. The market is not in oversold territory. To check for oversold conditions, we use the Percentage Bandwidth (%B) indicator. We consider the market is oversold when %B is below 30 at the 8-hours chart and all time periods below 8-hours, up to 2 hours. What we want is that at least one of the time periods between 2 and 8 hours is not oversold.

2. There is downward momentum in the 2-hours chart. If the BB MA at the 2-hours chart is going down, then it's the first indication that the break down may have some momentum to back a short-term reversal.

There's a few other conditions we verify before taking a position, but that's the main idea...