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 | £50,000 - £250,000 for meaningful cash exposure; from ~£10,000 margin via spread bet/CFD (FCA 5:1 cap) |
| Margin Type | Cash for share delivery; margin (5:1 retail cap) for spread bets, CFDs and single-stock futures |
| Best Used When | RELX at band extremes (mean reversion) or during band squeeze (breakout) |
| Lse Applicability | RELX (LSE: REL) is ideal for Bollinger Bands due to institutional price discovery creating reliable band touches; high LSE liquidity ensures clean reversals; the FTSE 100's flagship information-and-analytics technology compounder, it shows predictable volatility cycles around results and trading updates and a stable, mean-reverting blue-chip character. |
| Fca Compliance | Fully compliant standard technical analysis strategy. Cash share purchases incur 0.5% Stamp Duty Reserve Tax. Leveraged exposure via spread bets or CFDs is FCA-regulated under COBS 22.5: retail leverage on individual equities is capped at 5:1, with mandatory negative-balance protection and a 50% margin close-out rule. |
| Lot Sizes | 1,000 shares per contract (ICE Futures Europe / Eurex single-stock futures; ~£24,500 contract value) • 1,000 shares per contract (ICE Futures Europe, third-Friday expiry); predominantly an institutional market with lower retail liquidity than cash shares or spread bets • No lot restriction; quoted in pence (GBX). Retail positions typically 100-2,000 shares based on capital |
| Trading Hours | 8:00 AM - 4:30 PM London time (GMT/BST); opening auction 07:50-08:00, closing auction 16:30-16:35. Bollinger signals on daily close. |
| Expiry Considerations | Monthly expiry (third Friday); prefer 30+ DTE for options strategies. Spread bets and CFDs can be held as rolling daily (funded overnight) or as futures-dated contracts. |
| Tax Implications | Cash shares and CFDs: CGT at 18% (basic rate) / 24% (higher and additional rate) on net gains above the £3,000 annual exempt amount - no holding-period distinction; Section 104 pooling and the 30-day rule apply. Spread bets: tax-free for retail (no CGT, no Stamp Duty). Cash share purchases: 0.5% Stamp Duty. Holdings inside a Stocks & Shares ISA: CGT-free. |
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 RELX.
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 RELX). 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.
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. Squeeze straddles can return 50-100% on explosive moves.
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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