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 | $10,000 - $50,000 for meaningful exposure |
| Margin Type | Cash account for stock delivery; Margin account with options approval (Level 2-3) for options positions |
| Best Used When | ACN at band extremes (mean reversion) or during band squeeze (breakout) |
| Nyse Applicability | ACN ideal for Bollinger Bands due to deep institutional price discovery creating reliable band touches; High liquidity (avg ~3-4M shares/day) ensures clean reversals; Global IT-services and consulting bellwether with earnings- and bookings-driven volatility cycles |
| Sec Compliance | Compliant standard technical-analysis strategy under SEC/FINRA rules; ACN equity options require broker options approval (typically Level 2 for long options, Level 3 for spreads); Pattern Day Trader rule ($25,000 minimum equity) applies if 4+ day trades occur in 5 business days in a margin account |
| Lot Sizes | 100 shares per contract (standard US equity option; ~$16,000 notional per contract) • Reg-T initial margin ~50% (2:1 leverage); portfolio margin lower for qualified accounts. Single-stock futures not practical for US retail • No lot restriction; trade any share quantity (fractional shares available at many brokers) |
| Trading Hours | 9:30 AM - 4:00 PM ET (NYSE regular session); Bollinger signals computed on daily close. Pre-market (4:00-9:30 AM) and after-hours (4:00-8:00 PM) exist but signals use the regular-session close |
| Expiry Considerations | Weekly and monthly expiries available (monthly standard = 3rd Friday); Prefer 30+ DTE for swing options strategies |
| Tax Implications | Stock held >12 months: Long-term capital gains (0%/15%/20% by income bracket); <=12 months: Short-term, taxed as ordinary income (up to 37%); ACN equity options: Capital gains by holding period (single-stock options are NOT Section 1256 contracts); Wash-sale rule disallows a loss if a substantially identical security is repurchased within 30 days |
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 ACN.
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 ACN). 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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