Bollinger Breakout Strategy

A volatility breakout strategy that enters when price expands beyond the upper Bollinger Band and exits on mean reversion back to the middle band.

Concept

Bollinger Bands measure volatility. When price pushes through the upper band, it signals strong momentum. The strategy rides this momentum until price reverts to the moving average (middle band).

Signal	Condition	Logic
Buy	Close > Upper Band	Volatility breakout
Sell	Close < Middle Band	Mean reversion

Code

/**
 * Bollinger Breakout Strategy
 * 
 * Buy: Price closes above upper band (breakout)
 * Sell: Price closes below middle band (mean reversion)
 */

function define(ctx) {
  ctx.param('period', {
    type: 'int',
    label: 'BB Period',
    default: 20,
    min: 10,
    max: 50,
    step: 5,
    optimize: true,
  });
  
  ctx.param('stdDev', {
    type: 'float',
    label: 'Std Dev Multiplier',
    default: 2.0,
    min: 1.0,
    max: 3.0,
    step: 0.5,
    optimize: true,
  });
}

function init(ctx) {
  ctx.addIndicator('bb', 'BB', {
    period: ctx.p.period,
    stdDev: ctx.p.stdDev,
    source: 'close',
  });
}

function onBar(ctx, i) {
  const upper = ctx.ind.bb_upper[i];
  const middle = ctx.ind.bb_middle[i];
  const close = ctx.series.close[i];
  
  // Skip if indicators not ready
  if (q.isNaN(upper) || q.isNaN(middle)) return;
  
  const pos = ctx.position('ASSET');
  
  // Buy: breakout above upper band
  if (close > upper && pos.qty === 0) {
    ctx.order.market('ASSET', 1, { 
      signal: 'buy', 
      reason: 'upper_band_breakout' 
    });
  }
  
  // Sell: mean reversion back to middle band
  if (close < middle && pos.qty > 0) {
    ctx.order.close('ASSET', { 
      signal: 'sell', 
      reason: 'mean_reversion' 
    });
  }
}

How It Works

Bollinger Bands Output

The BB indicator produces three series:

Series	Access	Description
Upper	`ctx.ind.bb_upper[i]`	Middle + (stdDev * standard deviation)
Middle	`ctx.ind.bb_middle[i]`	Simple moving average of close
Lower	`ctx.ind.bb_lower[i]`	Middle - (stdDev * standard deviation)

Entry Logic

When the close price exceeds the upper band, it means price has moved more than N standard deviations above the mean — a statistically significant move that often continues.

Exit Logic

The middle band (SMA) acts as a "fair value" reference. When price drops back below it, the breakout momentum has faded.

Parameters

Parameter	Default	Range	Purpose
`period`	20	10-50	Lookback for SMA and standard deviation
`stdDev`	2.0	1.0-3.0	Band width in standard deviations

period: Shorter periods (10-15) create tighter, more reactive bands. Longer periods (30-50) create wider bands that filter out noise.

stdDev: Higher values (2.5-3.0) require stronger breakouts, producing fewer but higher-quality signals. Lower values (1.0-1.5) generate more signals with more false breakouts.

Best Markets

Works well in markets that alternate between consolidation and expansion
Performs in crypto due to frequent volatility cycles
Struggles in steadily trending markets with no clear breakout points

Recommended Timeframes

Timeframe	Character
4h	Good balance of signal frequency and reliability
1d	Fewer signals, higher quality breakouts
1h	More signals, more false breakouts — consider adding volume filters

Enhancement Ideas

Add volume confirmation (only enter breakouts with above-average volume)
Detect band squeeze (narrowing bands) before entry for higher probability setups
Use a trailing stop instead of mean reversion exit for stronger trends
Add RSI filter to avoid buying into already-extended momentum

Bollinger Bands Indicator — Indicator details
RSI Mean Reversion — Complementary approach
Multi-Indicator — Combining multiple indicators