Range trading with Bollinger Bands

Some currency pairs spend long stretches moving sideways, especially between economies with similar interest rates. Range traders bet that unusually large moves away from the average will snap back. Bollinger Bands give that idea a number: a band two standard deviations above and below a 20-day average.

The rules

• Calculate a 20-day average of the closing rate and a band two standard deviations either side.
• When the pair closes below the lower band, buy. When it closes above the upper band, sell.
• Exit when the price returns to the 20-day average.

Test it on real history

What the numbers usually show

Mean reversion often has a high win rate, because most stretched moves do drift back toward the average. The risk is the trade that does not come back: when a range breaks into a new trend, a position taken against it can lose more than many winners earned. Look at the worst trade and the maximum drawdown, not just the win rate.

Wider bands (try 2.5) produce fewer, more extreme signals. Narrower bands trade more and are more exposed to trends.