Bollinger Band Bounce

Start with standard settings: 20-period SMA with 2 standard deviations. This is John Bollinger's original configuration and works well for most instruments. As you gain experience, you can test variations like 2.5 SD for fewer but stronger signals.

No! Band touch is necessary but not sufficient. Wait for confirmation: reversal candle pattern, RSI oversold and turning up, or price closing back inside the band. Also check trend context - avoid buying lower band touches in downtrends.

Bollinger Bands are dynamic and calculated - they adjust automatically to volatility. Support/resistance are static levels drawn on charts. Band levels change daily; S/R levels are fixed. Best signals occur when band touch coincides with traditional S/R.

Bands expand when volatility increases and contract when it decreases. This is because they're calculated using standard deviation - a measure of price variation. Wide bands = high volatility. Narrow bands = low volatility (squeeze).

Honor your stop loss. Not all bounces work - that's why we use stops. If stopped out, review: Was there confirmation? Was it aligned with trend? In strong downtrends, price can 'walk the band' for weeks. Use losses to refine your filter criteria.

The squeeze occurs when band width reaches minimum levels (lowest 10-20% of recent range). Calculate Band Width = (Upper - Lower) / Middle. Compare to recent history. Squeeze indicates low volatility and often precedes significant breakouts - making bounces risky.

For longs: Require lower band touch AND RSI below 30. For shorts: Require upper band touch AND RSI above 70. The double confirmation significantly improves win rate. Bonus: If RSI shows divergence at the band touch, it's a triple confirmation.

Walking the band occurs in strong trends when price stays at one band for extended periods, with each 'bounce' returning to the same band. Avoid it by using a trend filter - only buy lower band touches above the 50 MA (pullbacks in uptrends).

Middle band is conservative with higher win rate. Opposite band is aggressive with lower win rate but larger wins. Start with middle band targets. Consider partial exits: 50% at middle band, trail remaining toward opposite band.

Higher timeframe provides context. Best setups: Weekly in upper half of bands (bullish) + Daily at lower band = pullback in uptrend. Conflicting timeframes (both at same extreme) suggest continuation, not bounce. Use higher TF to confirm direction, lower TF for entry.

Double Bollinger uses two sets: inner (1 SD) and outer (2 SD). This creates zones. Price between inner and outer bands is 'extended.' Price beyond outer band is 'extreme.' The zone system grades extremity rather than binary touch/no-touch, allowing position sizing by extremity.

Use spreads when IV is elevated at band extremes (common). This benefits from direction + IV crush. Use outright options when IV is low - cheaper to buy directional exposure. Always check IV rank before choosing. Spreads also define risk without needing stop losses.

Test period (10-50) and SD (1.5-3) combinations. Use walk-forward validation. Look for robust zones where neighboring parameters perform similarly. Separate regime testing (ranging vs trending markets). Accept that bounces underperform in trends by design.

Track average %B across positions. Low average %B = net oversold exposure. Balance upper and lower band positions when possible. Limit correlated positions (max 2-3 per sector). Monitor aggregate band width - portfolio squeeze suggests correlation risk.

Main failure modes: 1) Trading during squeezes (breakout beats bounce), 2) Counter-trend bounces in strong trends, 3) No confirmation (band touch alone), 4) Wide bands (volatile regime). Address these with squeeze filter, trend filter, confirmation requirement, and band width filter.