Captures reversals at band extremes and breakouts from band squeezes
| Strategy Type | Volatility-Based Mean Reversion and Breakout Trading |
| Market Outlook | Captures reversals at band extremes and breakouts from band squeezes |
| Risk Profile | Moderate - Defined entry zones with volatility-adjusted stops |
| Reward Profile | 1:1.5 to 1:3 on mean reversion; Larger on breakout trades |
| Time Horizon | Swing trading (3-15 days) for mean reversion; Positional for breakouts |
| Capital Requirement | C$30,000 - C$150,000 for meaningful exposure |
| Margin Type | Cash account for share ownership; CIRO-regulated margin account for leveraged positions; approved options level for options |
| Best Used When | CGI at band extremes (mean reversion) or during band squeeze (breakout) |
| Tsx Applicability | CGI ideal for Bollinger Bands due to deep institutional ownership and S&P/TSX 60 membership creating reliable band touches; low beta (~0.62) and steady compounding produce clean mean reversion; Canada's IT-services bellwether with predictable volatility cycles around quarterly earnings and large contract/acquisition announcements |
| Regulatory Compliance | Standard technical-analysis strategy. Canadian equities are regulated provincially under the CSA (Canadian Securities Administrators) framework, with CIRO (Canadian Investment Regulatory Organization) acting as the national self-regulatory body overseeing investment dealers and marketplaces. No registration is required for charting-based discretionary trading of your own capital. |
| Contract Specs | 100 shares per contract (Bourse de Montreal standard); American-style exercise on single stocks; single-stock option liquidity is materially thinner than US/India - expect wider bid-ask spreads and always use limit orders • Single-stock (share) futures are not a viable retail instrument in Canada (negligible/discontinued MX volume); use S&P/TSX 60 Index futures (SXF) or the XIU ETF as proxy hedges for directional or sector exposure • No lot restriction on TSX; 100-share board lots are standard but odd lots trade freely; primary and most liquid instrument for this strategy |
| Trading Hours | 9:30 AM - 4:00 PM ET (TSX and Bourse de Montreal); Bollinger signals computed on the daily close |
| Expiry Considerations | Monthly expiries (third Friday) on MX equity options; weeklies are limited to the most liquid names and are often unavailable on CGI; prefer 30+ DTE given thinner single-stock liquidity |
| Tax Implications | No securities transaction tax or stamp duty in Canada. Capital gains: 50% inclusion rate (proposed 66.67% increase was cancelled March 2025), taxed at marginal rate with NO holding-period distinction. Frequent/active trading and most option trading are typically characterised by the CRA as business income (100% taxable, IT-479R / adventure in the nature of trade), not capital gains. The subsection 39(4) election to treat Canadian securities as capital property does NOT cover options or other derivatives and is unavailable to traders/dealers. Note: carrying on a day-trading business inside a TFSA can be reassessed by the CRA as taxable business income. |
These are John Bollinger's original settings. 20 periods represents roughly one month of trading. 2 standard deviations capture ~95% of price action statistically. These work well for most stocks including CGI.
No. In strong uptrends, price 'walks' the upper band - touching it repeatedly without reversing. Check trend context (50 EMA slope) before mean reversion trades. Don't fight trends.
Normal bands have average width (5-8% for CGI). Squeeze has very narrow bands (< 3%) indicating low volatility. Squeeze often precedes big moves, so use breakout strategy instead of mean reversion.
Target is middle band, typically reached in 3-10 days. If price doesn't reach middle band within 10 days, consider exiting as the setup has failed.
No. Bands show volatility and extremes, not direction. A squeeze tells you big move is coming, but not which direction. You need breakout confirmation to determine direction.
For longs: Lower band touch + RSI < 35 + reversal candle. For shorts: Upper band touch + RSI > 65 + reversal candle. RSI divergence at bands is strongest signal. Skip trades without RSI confirmation.
%B = (Price - Lower Band)/(Upper - Lower). %B < 0.2 = Buy zone, %B > 0.8 = Sell zone. %B > 1.0 or < 0 indicates price outside bands - strong signal for breakout or extreme mean reversion.
Check band width: Narrow (squeeze) = Breakout strategy. Normal = Mean reversion. Wide (trending) = Trade with trend, not against. Also check ADX: < 20 = Range (mean revert), > 25 = Trending.
In uptrends (50 EMA rising), favor long mean reversion at lower band. In downtrends, favor short at upper band. Avoid counter-trend mean reversion unless very strong signal.
Gap through bands suggests strong momentum. For mean reversion, wait for stabilization (2-3 days). For breakout, gap through bands with volume is valid signal - trade in gap direction. Note CGI gaps often follow quarterly results or large contract/FX news.
Test periods 15-25 and StdDev 1.5-2.5. Use 70/30 in-sample/out-of-sample. Standard 20/2.0 is usually robust. Consider 20/2.25 for fewer, higher quality mean reversion signals.
TTM Squeeze defines squeeze as Bollinger Bands inside Keltner Channels. When BB contracts within KC = Squeeze on. When BB expands outside KC = Squeeze off. Trade breakout when squeeze releases.
ATM straddle before breakout. Enter when squeeze is confirmed (narrow bands). Exit losing leg on direction confirmation. Trail winning leg. Mind that CGI's MX option chain is thin - use limit orders and accept partial fills.
Weekly bands for major zones (where to look), Daily bands for entry timing (when to act). Long when price in weekly lower zone, enter on daily lower band bounce. Exit at daily upper band.
Win rate 55-60% for mean reversion, Profit Factor > 1.5, Sharpe > 1.0. Track by signal type (mean reversion vs breakout) and band width condition. Lower band + RSI < 30 should show highest win rate.
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