Trading Systems

BBZ: Bollinger Bands for italian stocks

We dedicate this article to a great modern technical analysis performer: John Bollinger, inventor of the same name bands. Bollinger bands are a volatility channel built from a median of prices, plus the double of the standard deviation calculated on the closure to determine the higher band and which is subtracted from the same entity to determine the lower band. Usually the standard bandwidth is set to 20. There are several ways to use the bands: as a trend follower indicator of price acceleration to signal the beginning of a new trend in the direction of the breakout, or as an indicator of reversal when prices, after striking the bands, fall within. Bollinger’s bands have also produced many other interesting indicators such as Band Width and% B, which may be the occasion for further insights.

Let’s focus on this article on the first mode of use, that is, as a follow-up trend indicator that signals the beginning of a price trend that may extend for several sessions. We tested this approach on Ftsemib’s daily candles, so all the 40 major Italian capitalization stocks. The logic is very simple and consists of opening a long position over the upper band with a length of 35 periods and a standard deviation equal to 1 (greater than the 20 used in the original formulation of Bollinger, also reproduced in an article on Technical Analysis of Stocks and Commodities of May 2005). The order of opening the position instead of a market order is placed with a limited order on the closing price of the candle that breaks the band.

The sell signal snaps when the prices fall within the upper band with the signal confirmed in closure. We did not consider short orders. These are very few lines of code, here proposed in Power Language of Multicharts, which can easily be translated into other languages or meta – languages.

As you can see from the image Ubi Banca, transactions sometimes close very quicly, so the strategy succeeds in cutting off losses and letting profits run when prices accelerate, triggering a trend.

By evaluating the performances from 1998 to today, where Ftsemib’s titles were weighed in the same way, there is a trend of very regular profits curves with very small drawdown phases. We did not consider the hypothesis to reinvest profits and in these conditions a profit factor of 1.73 with an average annual performance close to 5% is not a bad result. The maximum drawdown does not exceed 4%. The only tedious note  for the palate of many traders unknowingly about cutting down losses is the percentage of success fairly low, below 40%

//Strategy:   _BBZ EndOfBar

[IntrabarOrderGeneration = false]

inputs:

 BollingerPrice( Close ),

 Length( 35 ),

 NumDevsUp( 1 ),

 NumDevsDn( 1 ) ;

variables:

 UpperBand( 0 ),

 LowerBand( 0 ) ;

UpperBand = BollingerBand( BollingerPrice, Length,

 NumDevsUp ) ;

LowerBand = BollingerBand( BollingerPrice, Length,

 -NumDevsDn ) ;

if CurrentBar > 1 then

 begin

 if Close crosses over UpperBand then

  Buy ( “BBandLE” ) next bar market ;

 

 if Close crosses under UpperBand then

  Sell ( “BBandLX” ) next bar at C Limit ;

 {if Close crosses under LowerBand then

  Sell short ( “BBandSE” ) next bar at market ;

 if Close crosses over LowerBand then

     Buy to cover ( “BBandSX” ) next bar market ;}

 end ;

DISCLAIMER: Le informazioni fornite e le opinioni contenute nel presente documento, sono supportate da un software su parametri statistici oggettivi e da strumenti di analisi tecnica noti, tuttavia nessuna dichiarazione o garanzia, espressa o implicita, è fornita da Cyber Trade relativamente all’’accuratezza, completezza e accuratezza delle stesse. Lo scopo del presente documento è esclusivamente informativo. I risultati passati non costituiscono alcuna garanzia di ottenerne di simili in futuro. Chi investe o esercita una attività  speculativa lo fa sotto la propria responsabilità, conscio dei rischi intrinsechi e delle perdite che una tale operatività  può generare. 
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