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Buying Dips With Bollinger

Buying the dip with Bollinger Bands could be a profitable strategy! This edge trades the SPY that tracks the S&P 500, by combining Bollinger Bands with some more filters.

Edge Details

Market:

S&P 500

Security:

SPY/ES

Access Level:

Silver

Profit Factor: 2.63

Avg. Trade: $83

Win Percent: 86%

Trades: 123

A Closer Look

As can be seen in the infobox above, this edge trades the S&P 500 through the SPY. However, it should work well on other securities that track the same index as well.

With an impressive 86% winning rate and a profit factor of more than 2.5, this edge is a good start on a trading strategy!

Also, the fact that the backtest is carried out on nearly 20 years of data , is an indication that the edge is persistent throughout time, and might also perform well into the future!

The edge is composed of:

  1. A Tweaked Bollinger Band Filter
  2. A Second Indicator applied Twice With Different Approaches
  3. A Market Regime Filter
  4. An Indicator-Based Exit

1. A Tweaked Bollinger Band Filter

Typically, traders use Bollinger bands to see whether the price is above or below one of the bands.  However, in this edge, we use it in the following way:

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In your own testing, you could experiment with extending the threshold and see what happens! Maybe 2 or 3 produce even better signals?

2. A Second Indicator Applied Twice With Different Approaches

The other indicator is one that is commonly used among traders, and in this edge, it acts as a confirmation that the price is in the range where we want it to be.  You need to be a Silver member to have access to this post.

3. A Market Regime Filter

One of the most common regime filters is the 200-day moving average.

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4. An Indicator-Based Exit

To exit the trade, we will use an indicator to determine when the market has made its swing, and the odds are no longer in our favour

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How Does It Work?

This edge is of the mean-reverting type. That means that it tries to identify when the price has moved excessively in one direction and is about to turn around. Therefore the criteria are aimed at identifying these types of situations.

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Logic

Below the rules of this very edge are defined for you to replicate in your own testing;

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