Crash test indicator Bollinger Bands
Short translation from Russian
Bands Bollinger is nothing more than a set of three moving averages. All of them have the same calculation period, only add to the top and bottom, or subtract the standard deviation (price spread). As always, we will define the research objectives.
Test parameters and objectives
Goal 1: Determine the effectiveness of the Bollinger Bands indicator.
Goal 2: In connection with the preparation for a large survey of indicators,
I need to find out which of the approaches to stop loss and profit take is better suited for such studies:
1. Fixed stop loss and take profit, for example, 20 points;
2. SL / TP depending on the current market situation, for example, SL = 40% of the last candle;
3. Closing the transaction when the opposite signal appears.
4. In this case, we will close the transaction according to one of the methods described above.
5. Parameters of the indicator Bolinger Bands: period - 22, deviation - 2;
6. Range of research: 2012-2015;
7. Currency pair: EUR / USD;
8. Timeframes: M1-H4.
I recall that the tests are conducted without taking into account the spread and commissions. Thus, the results of the study will show the real effectiveness of the indicator under test.
Test 1 - Closing on a fixed SL / TP (fixed)
This approach allows us to identify the effectiveness of the indicator to open a deal, but we are missing the opportunity to reuse the indicator readings to close the same transaction. • SL = TP = 30 points; • Timeframe: M30. Conclusions: The above strategy with fixed SL / TP gives 50.27% of profitable trades, while the average profit per trade is 0.16 points.
Test 2 - Closure of flexibly-fixed SL / TP (flex)
These kinds of stop orders should better take into account the market situation, but again, they do not use the potential of the indicator to exit the deal. Most likely the results will be slightly better than in the first test.
• SL = The middle line of the indicator Bollinger Band (at the time of opening the transaction);
• TP = Distance from the central line to any extreme line (at the time of opening the transaction);
• Timeframe: M30. Conclusions: Indeed, a flexible stop order works better.
The number of effective deals is 51.11%, and the average profit per trade = 0.44 points.
Test 3 - Closing when a reverse signal appears (reversal)
A classic option for closing a trade. Personally, I do not like it very much. a complete reversal of the signal takes a long time, and you will now see how fewer transactions will be opened by this method.
• Without SL / TP;
• Close the transaction when a return signal appears;
• Timeframe: M30.
Conclusions: Transactions are smaller, the efficiency is higher (51.21%), as well as the return on each transaction (0.75 points). But in general, as in previous cases, the result is almost zero. The Bollinger Bands indicator has no profitable potential, and, like many other indicators, its effectiveness is not much different from throwing a coin.