Discussing the article: "Reimagining Classic Strategies (Part 16): Double Bollinger Band Breakouts"

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Check out the new article: Reimagining Classic Strategies (Part 16): Double Bollinger Band Breakouts.

This article walks the reader through a reimagined version of the classical Bollinger Band breakout strategy. It identifies key weaknesses in the original approach, such as its well-known susceptibility to false breakouts. The article aims to introduce a possible solution: the Double Bollinger Band trading strategy. This relatively lesser known approach supplements the weaknesses of the classical version and offers a more dynamic perspective on financial markets. It helps us overcome the old limitations defined by the original rules, providing traders with a stronger and more adaptive framework.

The classical version of the trading strategy is straightforward. Whenever price levels break above the uppermost band, we will pick short entries. And the opposite is true when price levels break below the lowest band, we will enter long positions. The reasoning behind the classical Bollinger Band strategy is that markets move in mean-reverting cycles. Therefore, breakouts beyond either extreme band level are expected to be followed up by price action that returns price levels to the middle band. 

As with any trading strategy, there are inherent limitations associated with the trading rules we have defined for the classical setup. It is widely known that such trading strategies are susceptible to false breakouts. Simply put, market conditions may lethargically drift enough to trigger our entry signals before violently changing course and reverting to their original trajectory. Such trading conditions will consistently drain any investor's equity.

Author: Gamuchirai Zororo Ndawana