Bitcoin Bollinger Bands Trading Strategy (Performance, Backtest, Setup, Rules, Video)

Bitcoin is known for its remarkable price fluctuations and volatility. This presents significant trading opportunities for traders, who often turn to technical analysis tools like Bollinger Bands to navigate this turbulent landscape. Can we make a Bitcoin Bollinger Bands trading strategy?

Yes, in this article, we make a Bitcoin Bollinger Bands trading strategy that spends only 34% of the time invested but still manages to almost keep up with a buy and hold strategy.

In this article, we’ll explore what the Bollinger Bands trading strategy is and backtest it on Bitcoin to see the results.

Related reading:

Understanding Bollinger Bands

Bollinger Bands, developed by John Bollinger, are a versatile and widely used technical indicator in the world of trading. Bollinger Bands consist of three key components:

  • Middle Band (SMA): The middle band is a simple moving average (SMA) of the Bitcoin’s price over a specific time period. The most common time frame used for Bitcoin is 20 periods.
  • Upper Band: The upper band is derived by adding a specified number of standard deviations (usually two) to the middle band’s value. This upper band represents the upper volatility limit or resistance level.
  • Lower Band: The lower band is calculated by subtracting the same number of standard deviations from the middle band. It represents the lower volatility limit or support level.

Traders use touches of the upper and lower bands to identify potential overbought or oversold conditions, signaling reversals. Combining Bollinger Bands with other indicators like RSI and Moving Averages enhances trading accuracy. The bands are also useful for trend following, with an upward-trending Bitcoin price riding along the upper band and a downward-trending price moving near the lower band.

Effective risk management, including the use of stop-loss orders and position sizing, is crucial. Additionally, traders can adjust Bollinger Bands to different time frames to align with their trading styles and adapt to market conditions.

Related reading:

Now, it’s time to backtest the Bollinger Bands on Bitcoin.

Bitcoin Bollinger Bands Trading Strategy – trading rules

The trading rules for the strategy we’re going to backtest are very simple. Keep in mind that we’ll be using a 20-day SMA and +/- 2 standard deviations to calculate the Bollinger Bands.

Here are the trading rules:

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Bitcoin Bollinger Bands Trading Strategy – Backtest

We backtested the strategy using the trading rules described above.

The backtest period is from 2015 until today.

Here is the equity curve:

Bitcoin Bollinger Bands Trading Strategy
Bitcoin Bollinger Bands Trading Strategy

The returns look really good! Here are some performance metrics and statistics about the strategy:

  • CAGR was 49.70% (buy and hold 60.56%)
  • Time spent in the market was 34.34%
  • Risk-adjusted return was 144.72% (CAGR divided by time spent in the market)
  • Maximum drawdown was -66.93% (-83.40%)

As you can see, the strategy performs really well. The CAGR is almost the same while being invested only ⅓ of the time and with a lower drawdown.

Next we decided to backtest a short strategy using bollinger bands in Bitcoin.

These are the trading rules:

THIS SECTION IS FOR MEMBERS ONLY. _________________ Click Here To Get Access Click Here To Get Access To Trading Rules

Here are the compounded returns:

Bitcoin Bollinger Bands trading strategy trading rules
Bitcoin Bollinger Bands trading strategy trading rules

The equity curve looks awful. We won’t get into the details of the strategy since its performance is not worth it. Bollinger Bands seem more useful for long strategies.

That said, this might be a viable for a short strategy, which is very valuable for diversification.

Bitcoin Bollinger Bands Trading Strategy – Conclusion

To sum up, today we presented a profitable Bollinger Bands trading strategy in Bitcoin, along with a short strategy that did not perform as well.

Bollinger Bands are a valuable tool for Bitcoin traders navigating the cryptocurrency’s price volatility. However, it’s essential to remember that no strategy is foolproof, and cryptocurrency trading always carries risks.

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