Dynamic Trend Quantitative Strategy Based on Bollinger Bands and RSI Cross

Overview

This strategy is a quantitative trading approach that combines Bollinger Bands and Relative Strength Index (RSI). It captures market turning points by coordinating price breakouts of Bollinger Bands with RSI overbought/oversold zones. The strategy employs 20-period Bollinger Bands and 14-period RSI, entering long positions when price breaks below the lower band while RSI is in oversold territory, and closing positions when price breaks above the upper band while RSI is in overbought territory.

Strategy Principles

The core logic is based on the synergy of two technical indicators. Bollinger Bands consist of a middle band (20-period SMA) and upper/lower bands (middle ±2 standard deviations), reflecting price volatility and trends. RSI calculates the relative strength of price movements to identify overbought/oversold conditions. When price touches the lower band and RSI is below 30, it suggests potential oversold conditions and rebound opportunities. When price touches the upper band and RSI is above 70, it indicates potential overbought conditions and correction risks. Cross-validation of these indicators enhances signal reliability.

Strategy Advantages

1. High signal reliability: Dual confirmation through Bollinger Bands and RSI effectively filters false signals
2. Rational risk control: Achieves adaptive risk management using Bollinger Bands’ statistical properties and RSI’s overbought/oversold judgments
3. Scientific parameter selection: Uses widely validated classic parameters with good universality
4. Simple calculation method: Clear strategy logic with low computational complexity for real-time execution
5. Accurate trend capture: Effectively identifies major market turning points

Strategy Risks

1. Oscillation market risk: May generate frequent trading signals in sideways markets, increasing transaction costs
2. Trend continuation risk: Early position closing might miss subsequent market movements
3. Signal lag: Technical indicators have inherent lag, potentially missing optimal entry points
4. False breakout risk: Short-term price breakouts of Bollinger Bands may generate false signals
5. Parameter sensitivity: Strategy performance is significantly influenced by indicator parameter selection

Strategy Optimization Directions

1. Introduce trend filters: Add moving average trend judgment to reduce false signals in oscillating markets
2. Dynamic parameter adjustment: Adaptively adjust Bollinger Bands’ standard deviation multiplier based on market volatility
3. Optimize stop-loss settings: Add trailing stop-loss functionality to improve trend capture
4. Add volume confirmation: Incorporate volume indicators to enhance signal reliability
5. Improve exit mechanism: Design more flexible exit conditions to avoid premature position closing

Summary

This is a quantitative strategy that innovatively combines classic technical indicators Bollinger Bands and RSI. Through the complementary effects of these indicators, it ensures signal reliability while effectively capturing market turning points. The strategy features clear logic and simple calculations with strong practicality. Although there are some inherent risks, the suggested optimization directions can further enhance strategy stability and profitability. This strategy is suitable for trending markets and can provide objective trading signal references for investors.