The thinking behind this well-known strategy is that prices will return to their mean average. It requires the use of the Bollinger Bands and is applied in stable markets moving at a steady range.What is the Bolly Band Bounce trading strategy?
The Bolly Band Bounce strategy is executed by considering the upper, middle, and lower Bollinger Bands. You assume that the asset in question will stay within the support (lower band) and resistance levels (upper band). The middle band is usually the simple 20-day moving average. You then check if the price moves towards the resistance or the support, then bounces back to the middle.
The strategy is to buy when the prices are trending near the lower band with the expectation that they will rise towards the middle. Selling is recommended when prices hit the upper band with the expectation that they will fall. The trade may lead to a loss if the prices choose to “walk the band” without bouncing to the middle.