how to avoid false signals from Bollinger Bands
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H.A. is not true price, it distorts what you see, so using it on BB is like using a ghost. I have learned how to use BB since starting in the 90s scalping and very long term. I am glad most can't do well on them. It is like anything else, use longer timeframe for trend and wait for retracement on shorter timeframe.
But using HA, you never have true images of support and resistance to the left of current price action which can show when not to take trades. Most traders never learn their craft well.
The key to trading is having abilities to alter losing %'s AND reward to risk. You can have 5% losing trades and be negative for the year cause you risking more than reward. And on other hand you can have 5% winning trades for the year and make 100% for the year cause you became excellent at risk management, risking close to zero and letting trade play out.
HA is better suited after you become profitable just using charting in basic patterns.
I don't think that the right question is 'How to avoid false signals', because they will always exist.
The right question should be 'How to manage the risk for false signals'.
In trading, it's not important to be right. The P&L should be at that matters.
https://decodingmarkets.com/backtesting-bollinger-bands/ has
So with a high win rate, the results likely had few false signals.
Out-Of-Sample Results
Since this guidebook was published in August 2012 we now have over five years of data with which to evaluate this system.
Following shows the results and equity curve when we apply this same system to the watchlist of 45 stocks and ETFs during the out-of-sample period between 9/2012 – 9/2017.
So with a high win rate, the results likely had few false signals.
Let's put a stake through the heart of BB trading: no room trades BB in a transparent manner with a track record; it is just an other dumb indicator that has no stats, no definitions and no application. Since there is no active, direct and valid BB trading sites, there are no true signals, let alone false signals. Bury it with Gann and Fibonacci as a worthless, useless indicators that are not defined or directly applied as a specific trade methodology. Such a fascination for cadaveric indicators.
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While https://decodingmarkets.com/backtesting-bollinger-bands is not a trading room, it does have forward test results and a definition in AmiBroker Formula Language (AFL) code.
good find! I am guessing that an annualized return rate of 5.54% is why no one used BB ever. Thanks!
- Annualised Return: 5.54%
CannonTrading_Ilan
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My colleague Roger Muri had the following to share:
Any signal has to be treated with its own best judgement, a signal can only be as good as the trader allows it to be.
Otherwise the entire world would use the same system which would not work... keep in mind that on the other side is always another order.
a good signal and a trader that analyzes the trading day right will make the right decisions and this combination will either lead to success or failure of the signals.
One thing I like to use is the concept of PRICE CONFIRMATION:
“Price confirmation”?
What I mean by price confirmation is as follows: just because a signal appears, does not mean we have a crystal ball. In order to increase chances of a good trade I like to enter trades using a stop order. I want to see that price action actually follows the signal, so if I get a long signal, I will look at the bar preceding the signal and place a buy stop order either X # of ticks above that high (depending on the time of the day and the signal). If I get a sell signal, I will look at the bar preceding the signal and place a sell stop X # of ticks below that low (depending on the time of the day and the signal)
I try to enter SOME TRADES using STOP ORDERS
Note about stops: THEPLACEMENT OF CONTINGENT ORDERS BY YOU ORYOUR TRADING ADVISOR, SUCH AS A ‘‘STOP-LOSS’’OR ‘‘STOP-LIMIT’’ ORDER, WILL NOT NECESSARILY LIMITYOUR LOSSES TO THE INTENDED AMOUNTS, SINCE MARKETCONDITIONS MAY MAKE IT IMPOSSIBLE TO EXECUTE SUCHORDERS.
Any signal has to be treated with its own best judgement, a signal can only be as good as the trader allows it to be.
Otherwise the entire world would use the same system which would not work... keep in mind that on the other side is always another order.
a good signal and a trader that analyzes the trading day right will make the right decisions and this combination will either lead to success or failure of the signals.
One thing I like to use is the concept of PRICE CONFIRMATION:
“Price confirmation”?
What I mean by price confirmation is as follows: just because a signal appears, does not mean we have a crystal ball. In order to increase chances of a good trade I like to enter trades using a stop order. I want to see that price action actually follows the signal, so if I get a long signal, I will look at the bar preceding the signal and place a buy stop order either X # of ticks above that high (depending on the time of the day and the signal). If I get a sell signal, I will look at the bar preceding the signal and place a sell stop X # of ticks below that low (depending on the time of the day and the signal)
I try to enter SOME TRADES using STOP ORDERS
Note about stops: THEPLACEMENT OF CONTINGENT ORDERS BY YOU ORYOUR TRADING ADVISOR, SUCH AS A ‘‘STOP-LOSS’’OR ‘‘STOP-LIMIT’’ ORDER, WILL NOT NECESSARILY LIMITYOUR LOSSES TO THE INTENDED AMOUNTS, SINCE MARKETCONDITIONS MAY MAKE IT IMPOSSIBLE TO EXECUTE SUCHORDERS.
Thanks for the contribute. Yes, I have noticed that price confirmation improves strongly the success of the strategy. In general the shape, the size and the time needed for a confirmation can vary the % of success and the target profit