Bollinger Band Reversal Based Quantitative Strategy

Overview

The strategy is named “Bollinger Band Reversal Based Quantitative Strategy”. It utilizes the upper and lower rails of the Bollinger Bands to determine entries and exits. When the price is near the lower rail of the bands and shows signs of a downward breakthrough, it indicates the price may be reversing, so go long. When the price rises to the upper rail, it indicates the price may reverse downwards, so go short.

Strategy Logic

The strategy uses the RSI indicator to determine long entries. Specifically, it checks if the closing price of the most recent bar is lower than the lowest price of the previous 6 bars, meantime the Bollinger Band Width (BBW) is greater than a threshold, and the Bollinger Band Ratio (BBR) is within a range. If these criteria are met, it indicates the price may be reversing, so go long.

The exit is simple. When RSI goes above 70, indicating the price is overheated, close the long position.

Advantage Analysis

The biggest advantage of this strategy is utilizing the upper and lower rails of Bollinger Bands to determine entries. When BB reverses direction, go long or short to catch short-term reversal opportunities. Compared to simple RSI strategies, this strategy has more prudent criteria for entries, thus avoiding wrong trades.

Also, the strategy is sensitive to parameters. By tuning BBW and BBR, it can be optimized for different products and achieve better results.

Risk Analysis

The main risk is that BB does not perfectly predict price reversals. If the timing is inappropriate, it easily leads to missing best entries or floating losses.

Also, short-term fluctuations may trigger frequent entries and exits, increasing costs from commissions and slippages. If the reversing momentum is not enough, it risks taking losses from exits.

Optimization Directions

The strategy can be improved in the following aspects:

1. Optimize parameters. Test and tune BBW, BBR and other parameters more finely for different products.

2. Add stop loss mechanisms, such as trailing stop loss and time stop loss, to limit maximum losses.

3. Incorporate other indicators, like KDJ and MACD, to make entries more reliable.

4. Improve exit logic. The current exit is simple. Can optimize with trailing profit taking or exits based on volatility.

Conclusion

This strategy utilizes the characteristics of Bollinger Bands to determine potential reversal points for entries and exits. Compared to single indicators like RSI, it has more accurate timing. With parameter tuning, stop losses and take profits, it can be more reliable. But BB’s prediction is not perfect, so there are still some randomness in performance.