Chapter 13: Bollinger Bands – The System

Date: 08 Oct 2024

This chapter discusses how to build a complete trading system around Bollinger Bands. Bollinger covers key aspects of system development, including back testing, optimization, and the creation of automated trading systems.

Analysis:

Bollinger emphasizes the importance of developing a systematic approach to trading, where every aspect of the strategy is defined and tested. He discusses the process of back testing, which involves applying a trading strategy to historical data to evaluate its performance. Optimization is also covered, with Bollinger advising traders to refine their systems based on the results of back testing. Additionally, Bollinger explores the potential of automated trading
systems, where Bollinger Bands are programmed into algorithms that can execute trades based on predefined criteria. The chapter underscores the importance of thorough testing and continuous refinement to ensure the system’s effectiveness in live trading.

Key Takeaways:

Ψ Systematic Approach: Developing a complete trading system with Bollinger Bands involves defining, testing, and refining every aspect of the strategy.
Ψ Back testing: Evaluating a strategy’s performance using historical data is crucial for understanding its potential in live markets.
Ψ Automation Potential: Automated trading systems can execute trades based on Bollinger Bands, offering the possibility of consistent, rule-based trading.

Relevance in Today’s Scenario:

In today’s markets, where algorithmic trading and automated systems are increasingly common, the development of a systematic approach is essential. Bollinger’s advice on building and testing trading systems is highly relevant for traders who want to leverage technology to improve their trading performance. The emphasis on back testing and continuous refinement is
particularly important in an environment where markets are constantly evolving.