To trade with the trend or not … just what is the trend anyway? The “Forward Trend Bollinger Band Counter Trend” trade design is taking advantage of the counter trend trade strategy in an overall forward trend market condition. The chart set up for this trade plan is a 10 minute chart with Bollinger Bands set to 20 MA with a deviation of 1.4. In addition a 200 MA is used.

The trigger: First you only trade in the direction of the 200MA. Then you need to have at least 4 closes of bars between the two Bollinger Bands before considering the trade. This will stop you getting into repeating bad  trades, where the price is continuing to break the Bollinger Bands. So the trade trigger is to go long/short, depending of the direction of the 200 MA on the breaking of the Bollinger Band in the opposite direction of this 200 MA. So for long trades you gone long on the break below the lower band and short on the break above the upper band, assuming of course only taking trades in the direction of the 200MA.

Profit Target is: 40 ticks

Stop: 20 ticks

Profit/stop ratio: 2 to 1

Filter: I use a filter of 18 ticks width of the Bollinger Bands. This is the distance between the upper and lower Bollinger Bands. This will filter out quiet times.

Results: Performing a robo back test, the win/loss ratio is about 46% which is a winner based upon the 2 to 1, profit/stops ratio. Maximum draw-downs are about 1%. This test was done on 2 months of data. See the thumbnail for a pictorial of this trade design. Slight adjustments to these parameters need to made for optimisation of different instruments due to their price/tick size movements.

Note: I tried a “move stops to break even” order management strategy. It did not help no matter what parameters I used. In fact, on almost all my robo back testing work efforts, I have yet to see any benefits from this order management strategy. A fade in order management strategy however bumped up the win/loss ratio to about 57%.

Try this one and let me know how you do….