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Bollinger Band Fadetwo standard deviations

Evidence: ModerateBeginnerMean reversion · Volatility band

Bollinger bands put a number on how unusual the current price is, in units of its own recent volatility. A close outside the lower band means price is further from its twenty-period average than it has been about ninety-five percent of the time.

The trade is the close back inside, with the middle band as the target. The whole thing lives or dies on one gate: the market has to be ranging. In a trend, the band is not an extreme — it is where price lives.

The evidence here is for reversion itself, not for this particular measure of it. The ruler below is a way of deciding when price has stretched far enough — it is not what makes it come back.

Category
Mean reversion · Volatility band
Timeframe
M15 primary · H1 for the range check
Suitable pairs
EURUSD · EURGBP · USDCHF — the range-prone majors
Session
London and New York
Indicators / tools
Bollinger Bands(20, 2) · ADX(14) · ATR(14)

Valid setup

MR-02 · BOLLINGER BAND FADE — VALID SETUP EURGBP · M15 · ADX under 20, a close below the lower band, then back inside it LONG 0.85183 0.85234 0.85285 0.85337 0.85388 0.85439 0.85491 to the mean 1R Bollinger(20, 2) TARGET = middle band ENTRY STOP 1 2 3 4 0.85342 0.85306 0.85234 ① ADX under 20 — the market is ranging ② A candle closes below the lower band ③ The bands are not expanding: a stretch, not a squeeze breaking ④ Next candle closes back inside — enter at that close ⑤ Stop below the excursion low plus 0.3 × ATR ⑥ Target the middle band. Never the far band

Exact rules

Entry

  • Range gate: ADX(14) below 20. Check this before looking at the bands, not after.
  • Setup: a candle closes below the lower band.
  • Trigger: the next candle closes back inside the band.
  • Enter at that close.
  • Skip entirely if the bands are expanding — a squeeze breaking out is the opposite trade.

Stop loss

  • Below the low of the excursion, plus 0.3 × ATR(14).
  • If price closes outside the band again after entry, leave. The band has stopped being an extreme.
  • Risk 0.5%–1%.

Take profit / exit

  • The middle band — the twenty-period average.
  • Not the opposite band. That is a different trade with different evidence, and it turns a reversion into a reversal.
  • Time exit after ten bars.

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More from Mean reversion

RSI(2) Extremesthe short-period oscillatorZ-Score Reversionthe distance, stated plainlyVWAP Reversionthe price institutions are measured against

Trading carries risk and most retail accounts lose money. Nothing on this page is financial advice or a recommendation to trade. The chart is an illustration of the rules on constructed candles — it is not a record of a trade and not a backtest.