when we look at the bollinger bands it
looks like a great indicator to trade
forex
the price seems to always respect the
bands so imagine if we sell when the
price touches the upper band and exit
when it touches the lower one that
sounds pretty obvious right
how successful would this strategy be in
your opinion that's what we'll learn
today
[Music]
a few weeks ago we received a strategy
from asim shaikik who's one of our
subscribers he wanted us to backtest a
simple bollinger band's trading strategy
that according to him has a success rate
of 90
so far he's been back testing it
manually using the replay mode and an
excel spreadsheet
thanks to sim for this strategy let's
give it a try using an expert advisor
this time
the best thing about this bollinger
bands trading strategy that sim sent us
is its simplicity it's only relying on
the bollinger bands indicator that i'm
sure you guys are familiar with it's
probably one of the most simple trading
indicators that you can think of
no worries i'll explain this strategy in
detail and go through some examples from
the chart
we'll learn when to enter and exit the
market and once done we'll back test the
strategy together and see how profitable
it is so keep watching till the end
this strategy relies entirely on the
bollinger bands indicator which is a
technical analysis tool defined by a set
of trend lines plotted two standard
deviations positively and negatively
away from a simple moving average of a
securities price but which can be
adjusted to user preferences
bollinger bands are a type of price
envelope developed by john bollinger the
price envelopes define upper and lower
price range levels
the indicator is available on most chart
platforms for instance if you're on
trading view you just need to click on
indicators then type in bollinger bands
you can simply double click it and
you'll see that it's been added to the
chart
if we check the indicator settings we
can see that bollinger bands use two
parameters period and standard deviation
the default values are 20 for the period
and 2 for standard deviations although
you may customize the combinations
this is a lagging indicator which is a
tool used by traders to analyze the
markets using an average of previous
price action data the lagging aspect of
indicators will get traders into trades
that have greater confirmation behind
them as they are based on more data in
other words the indicator will force
traders to wait a bit before entering
so how does this strategy work
well when the price touches the upper
band and closes above it we go short and
we remain in the market until the price
touches the lower band
let's look at this example this is the
daily euro usd chart we can see that the
price has touched the upper bollinger
band and close above it
we immediately go short and exit the
trade when the price touches the lower
band and closes below it
on the other hand we go long when the
price closes below the bollinger band we
place a buy order the price will
eventually touch the upper band in the
future and that's the time when we exit
the trade
there is no stop loss in this bollinger
bands trading strategy
if you've watched the video where we
traded forex with and without stop loss
you'd know that this strategy is a bit
risky but we'll know the answer in a bit
so keep watching
as usual we'll back test this strategy
using an expert advisor it's built
according to this bollinger band's way
of trading the market back testing a
strategy using an expert advisor is the
most accurate and fastest way to review
any trading strategy
you can easily find the reasons behind
some of the losing trades and to find
the best settings for each currency pair
if you don't know how to build an expert
advisor you can find people online who
offer this service they usually charge
up to 500 if you're looking for
sophisticated one
otherwise you can learn how to do that
from a to z
i'm going to leave a link in the
description box to an interesting udemy
course that you can watch to learn how
to easily build an expert advisor even
if you're not good with numbers and
codes
according to a sim who's again the guy
who submitted this trading method the
bollinger bands trading strategy works
best on the daily time frame as the
entry signals are more reliable in this
setup
this is our expert advisor
let's do some adjustments before back
testing you can see that we're on a
daily time frame i'll run this over the
last three years and use the euro usd
currency pair this would work 90 of the
time based on the manual back testing
done by a sim
we'll use a 1 000 initial balance and
allow both buy and sell orders this time
which means that the expert advisor will
run both long and short
i'll let the ea place as many trades as
possible we'll enter the market whenever
the entry conditions are met so i'll
keep this option disabled
other than that we'll run this back
testing with a 1 micro lot volume size
to avoid any early margin call we need
to keep the take profit and stop loss
disabled this time so the trades will
only be closed when the price touches
either the upper or lower bollinger
bands
to protect our balance we'll exit the
trade if the price reverses
this will allow us to protect our
capital in case of any major price
reversal
let's double check all the settings then
hit on start
while waiting for the results don't
forget to hit the thumbs up button and
subscribe to the channel if this is your
first time here you can also submit your
trading strategy for back testing simply
visit this link and provide the
necessary details about your trading
method
we've just completed back testing
let's look at the results now
apparently our balance has significantly
increased by looking at this graph we
can assume that the drawdown is not that
bad
we had 46 trades in total with an
average of one entry per month the
success rate is more than eighty percent
which is fantastic the drawdown is
almost twenty percent which is
relatively high and apparently we've
made a profit of five hundred thirty one
dollars and forty eight cents
this looks like a great strategy to be
honest with you
but what if we run this expert advisor
over the last 10 years instead of three
are we going to make more profit well
let's do it
i'll only change the time range and run
this expert advisor from 2011 to 2021.
we can keep the other settings as they
are and hit on start
back testing customization is extremely
important many back testing applications
have input for commission amounts lot
sizes margin requirements interest rates
and many other settings
to get the most accurate back testing
results it's important to tune these
settings to mimic the broker to be used
when the system goes live
all right these are the results we did
make some profit at the beginning and
managed to maintain our balance safe for
some time but somehow our equity has
dramatically dropped after trade number
40.
by analyzing the chart we can notice
that the price was on a bearish super
trend and many buy trades have been
triggered here as the price was
continuously touching the lower
bollinger bands for more than six months
apparently it's important to have fixed
take profit and stop loss levels for
every single trade to avoid this
situation
only by looking at the chart we can see
that some of these 13 losing buy trades
will be turned into winners if we adjust
the settings accordingly
so i would advise assim not to use this
strategy you might end up losing a big
part of your balance especially if
you're stuck in a super up or down trend
it's important to come up with an
element that will help you filter out
these losing trades have you considered
a fixed risk to reward ratio
we can clearly see that it would help us
get rid of some of these losing trades
and turn them into winners
we already have this option available on
our expert advisor so it won't be
complicated to test
let me know in the comments section the
take profit and stop-loss values you
want me to use as we continue working on
this method
what do you think about this bollinger
bands trading strategy let us know in
the comments section and don't forget to
check out the other videos on this
channel
happy trading
you