Bollinger-Band Range Mean Reversion

How the rule works

A band excursion measures relative price, not a guaranteed turning point. The flat-SMA and ATR tests narrow the regime to a range hypothesis. Waiting for the completed candle to return inside separates a rejected excursion from a continuing outside-band move. A new trend can still walk down the lower band and stop consecutive long reversals.

Setup

• Use completed H1 bars and the broker's displayed bid chart; calculate every value using the just-closed bar and earlier bars only.
• A range is eligible when absolute SMA(50)[1]-SMA(50)[11] is no more than 0.25 ATR(14)[1], and the current ATR is below 1.5 times its 100-bar median.
• Allow one position per symbol. Do not add to a losing position.

Indicators

• Bollinger Bands: 20-period SMA, 2.0 population-standard-deviation bands, Close
• SMA(50), Close
• ATR(14)

Long entry

• At a bar close, mark a long setup if Low[1] is below LowerBand[1], Close[1] is back above LowerBand[1], and Close[1] is above Open[1].
• Submit a market buy at the next bar's first tradable ask; cancel if that quote is more than 0.10 ATR above Close[1].

Short entry

• At a bar close, mark a short setup if High[1] is above UpperBand[1], Close[1] is back below UpperBand[1], and Close[1] is below Open[1].
• Submit a market sell at the next bar's first tradable bid; cancel if that quote is more than 0.10 ATR below Close[1].

Stop loss

• Long SL = Low[1] − 1.25×ATR14[1]; short SL = High[1] + 1.25×ATR14[1]. If either violates the broker’s minimum distance, cancel the setup rather than silently changing its rule. Size from the actual executable entry.

Exit

• At entry place the target at signal-time SMA20. After each later completed H1 bar, update the target to the new SMA20 only if it remains beyond the current executable price in the profit direction; otherwise close at that next quote. Count a long target only when bid reaches it, and a short target only when ask reaches it. Skip an entry whose first target is already on the loss side.
• If the middle band has not been touched after 12 completed H1 bars, exit at the next bar open.
• For a long, if a completed H1 bar closes below LowerBand[1], send a market sell at the next executable bid; for a short, if a completed bar closes above UpperBand[1], buy to cover at the next executable ask. This is adverse-breakout invalidation, not an opposite-band target.

Risk and position size

• Risk 0.50% of equity, including a transaction-cost reserve. Lots = available risk cash / ((abs(entry − SL) / tick size) × loss tick value per one lot + estimated commission per lot). Verify account-currency conversion and round down to the broker volume step.
• Cap aggregate open risk at 1.0% and skip a trade if margin is insufficient.

Costs and execution

• Backtests must use variable bid/ask spread, commission, and at least one tick of adverse entry/exit slippage. Use New York 17:00 daily rollover; overnight positions accrue the broker's long/short swap.

When the method can fail

• Skip the 30 minutes before through 30 minutes after scheduled policy decisions, CPI, payrolls, or GDP for either currency.
• Avoid visibly directional conditions; a flat average filter can still fail when a trend begins.

Worked example

• Hypothetical: lower band 1.0980, signal low 1.0975, bullish close 1.0985 and ATR 0.0010. Entry 1.0986 gives SL 1.09625; SMA20 at 1.1010 is a 24-pip target against 23.5 pips of price risk. The example passes only if the separate flatness and volatility tests also pass.

Historical test results

No tested pair meets the complete research-screen criterion. Positive cells alone do not qualify the strategy.

18 mechanical runs across 3 pairs on H1. Decisions use completed strategy bars; fills use native ICMarketsEU-Demo M15 Bid candles with explicitly modelled costs. Full window: 1 January 2025–18 September 2026. Each row starts with an independent USD10,000 account.

Interpretation: these are mechanical bar-model tests, not verified real-tick or live performance. Price rules were held fixed; subjective market-quality exclusions remain outside the mechanical model. Strategy adaptation requires a new test.

Download all test metrics and assumptions (JSON) · Download simulated trade logs and reproducible research code · Broker commission and swap documentation

Execution conventions

• Bar [0] is forming; [1] is the most recently completed bar. Unless explicitly stated otherwise, indicators use Close with zero plot shift and signals use completed bars. EMA is exponential, SMA is arithmetic and MT5 ATR is its native true-range average. Use at least 300 completed warm-up bars; a longer rule-specific requirement takes priority.
• A close-based signal is executed at the first available quote after the close, never retrospectively at the signal close. Buy at ask, sell at bid; close longs at bid and shorts at ask. A standing stop or target can fill within a bar. A gap through a stop fills at the first executable price, which can be worse than the stop.
• R means the initial entry-to-protective-stop distance, fixed at entry. Convert that distance into account-currency loss using the symbol tick size and loss-side tick value. Lots = cash risk / loss per lot, rounded down to the broker volume step. Round prices to the trade tick and recheck risk plus minimum stop/freeze distances before submitting. Budget commission and slippage separately; skip if minimum size exceeds the risk limit.
• Use one position per symbol and no averaging down. A trailing stop only tightens after a completed bar and becomes active on the next quote. The entry bar is holding bar one; a time exit executes on the quote after the specified holding bar closes. When a hard stop and a close-based exit compete, the stop already active takes precedence. With OHLC-only data, assume stop before target if both can occur in one bar; tick data is needed to resolve the order.
• The article defines the price rule. Any discretionary news exclusion changes the tested variant and must be recorded in advance. Map broker timestamps to the named London/New York time zone using historical daylight-saving offsets; do not assume a fixed UTC offset. Include spread, commission, slippage, overnight financing and triple-swap days in a profitability test.

Adapt and test your version

• Treat these inputs as a reproducible starting specification. Choose a currency pair, session and holding period that match the time you can monitor the market, then record any changes to indicator periods, thresholds, stop distance or exits as a new version.
• Change one hypothesis at a time. Reserve a later period and additional pairs for evaluation before looking at their results. Include your account’s actual trading and financing costs, compare small parameter changes, and forward-test on demo. A selected profitable window does not validate the strategy or its modified version.

Reproduce the chart in MT5

• Open EURUSD on H1. Add the indicators listed above through Insert → Indicators; use Close and zero shift unless a different setting is specified. The Data Window displays exact values for the selected completed candle.
• Compare the signal candle with the required earlier bars before moving forward. Use the crosshair to read prices and times. For custom channels, session levels or Supertrend, reproduce the formula in this guide and check the calculation before relying on an external indicator.
• Draw entry, initial SL and target only after a candle has satisfied every condition. Label planned levels as plans; they do not demonstrate a historical fill. The featured chart is genuine historical MT5 context and is not a trade-performance report.

Sources

• A complete explanation of Bollinger Bands — Band construction, classic parameters, and relative-price interpretation.
• Bollinger Bands — MT5 indicator availability and inputs.