Bollinger Bands Breakout Strategy
Build a volatility-based breakout strategy using Bollinger Bands. This tutorial teaches you to identify and trade explosive price moves when volatility contracts and then expands.
What You'll Build
A breakout strategy that identifies low-volatility periods (bands squeezing) and enters when price breaks out of the bands with volume confirmation. Captures explosive moves after consolidation.
Time Required: 20-25 minutes
Strategy Overview
Strategy Type
Breakout/Volatility - profits from explosive moves after periods of low volatility.
Indicator
Bollinger Bands - measures volatility and identifies potential breakout zones.
Entry Logic
Buy when price closes above upper band after band squeeze (low volatility period).
Exit Logic
Sell when price returns to middle band (SMA) or exits below lower band.
Understanding Bollinger Bands
Bollinger Bands Components
The Squeeze: When bands narrow (low bandwidth), volatility is contracting. This often precedes explosive moves. Price breakouts from squeezes can be very profitable.
Step 1: Create Bollinger Bands Features
Create Multiple BB Features
You'll need to create separate features for each band:
- BB_Upper_20_2: Upper Bollinger Band (20-period SMA + 2 std dev)
- BB_Middle_20: Middle Band (20-period SMA)
- BB_Lower_20_2: Lower Bollinger Band (20-period SMA - 2 std dev)
- BB_Width_20_2: Bandwidth (Upper - Lower), measures volatility
Step 2: Build Strategy Logic
Breakout Strategy Canvas
- Create strategy: "Bollinger Breakout"
- Build entry condition (upward breakout):Buy Signal:• Add Feature Node: Close Price• Add Feature Node:
BB_Upper_20_2• Add Comparison: Close > Upper Band• Add Feature Node:BB_Width_20_2• Add Historical Node: BB_Width 5 bars ago• Add Comparison: Current Width > Historical Width (bands expanding)• Add AND Logic: Both conditions must be true• Add Entry Signal: Buy - Build exit condition:Sell Signal:• Add Feature Node: Close Price• Add Feature Node:
BB_Middle_20• Add Comparison: Close crosses below Middle Band• Add Exit Signal: Sell - Validate and save
Step 3: Backtest Configuration
Recommended Settings
- Symbol: Volatile pairs (BTCUSDT, ETHUSDT, SOLUSDT)
- Timeframe: 1h or 4h (good balance for breakouts)
- Period: 6-12 months
- Position Size: 80% (leave buffer for volatility)
Why volatile assets? Breakout strategies need price movement. Low-volatility assets rarely produce squeezes and breakouts. Crypto pairs work well due to natural volatility.
Expected Performance
Target Metrics
Total Return (6mo)
25-50%
Sharpe Ratio
1.0-1.8
Max Drawdown
18-28%
Win Rate
45-55%
Trades (6mo)
20-40
Avg Win/Loss
1.3-2.0
Strategy Enhancements
Volume Confirmation
Only take breakouts when volume is above 1.5x average. High volume confirms genuine breakouts vs. false moves.
Squeeze Detection
Measure bandwidth over rolling 20-bar window. Only trade when current bandwidth is in lowest 20th percentile (tight squeeze).
ATR Stop Loss
Set stop loss at 2× ATR below entry. Adapts to current volatility and reduces premature exits.
Profit Target
Take profit when price reaches 1.5-2× the bandwidth above entry. Locks in gains from explosive moves.
Completion Checklist
- ✓ Created all Bollinger Bands features (Upper, Middle, Lower, Width)
- ✓ Built breakout logic with squeeze detection
- ✓ Backtested on volatile assets with good results
- ✓ Understand when breakouts work (after low volatility periods)
- ✓ Deployed to paper trading and monitoring performance