Bollinger Band Breakout

The Bollinger Band Breakout indicator is a trend-following strategy tool designed to capture momentum when price breaches the upper Bollinger Band while utilizing the lower band as a trailing stop. This script provides a systematic approach to entering long positions during volatility expansions and managing risk through multi-timeframe trend filters and customizable exit logic.

Usage

The strategy primarily identifies long opportunities when the price (either on a wick or a candle close) crosses above the upper Bollinger Band. It is designed to keep traders on the right side of the trend by filtering out signals that occur during bearish regimes.

Key usage scenarios include:

• Trend Filtering: Enable the Moving Average filters to ensure entries only occur when the price is above specific SMA or EMA levels on the current or a higher timeframe (e.g., Daily).
• Execution Modes: Switch between "Wick" or "Close" execution. "Wick" mode acts like a standing stop-limit order at the band boundary, while "Close" mode requires the candle to finish above the band.
• Risk Management: Use the "Tight Stop" feature to set a fixed percentage initial stop loss. This protects capital immediately after entry until the lower Bollinger Band rises high enough to take over as the trailing stop.

Details

The script calculates standard Bollinger Bands using a simple moving average (basis) and standard deviation multipliers. Unlike standard implementations, this version allows for asymmetrical bands by providing separate inputs for the upper and lower standard deviations.

For trend confirmation, the script utilizes request.security to fetch higher timeframe data, allowing the strategy to align with broader market cycles. The stop-loss logic is dynamic: it chooses the higher value between the user-defined percentage stop and the current lower Bollinger Band, ensuring the exit level always moves in favor of the trade (trailing) without widening the risk.

Settings

Bollinger Band Settings

• Bollinger Band Length: The lookback period for the basis SMA and standard deviation.
• Standard Deviation (Top): Multiplier for the upper band.
• Standard Deviation (Bottom): Multiplier for the lower band.

Order Entry

• Use Fixed Percentage for Initial Stop?: When enabled, applies a fixed percentage stop until the lower band catches up.
• Stop: The percentage value used for the initial tight stop.
• Execute Trades On...: Choose between "Wick" (immediate) or "Close" (confirmed) for entries and exits.

Moving Average Filtering

• Use Moving Average for Filtering (Current Timeframe): Toggles trend filtering on the active chart timeframe.
• MA Type/Length: Select between SMA or EMA and define the lookback period.
• Use Moving Average for Filtering (High Timeframe): Toggles filtering based on a secondary, higher timeframe.
• Timeframe of Moving Average: Defines the higher timeframe (e.g., Daily, Weekly) for trend context.

FAQ

How do I use the higher timeframe filter?

Enable the "Use Moving Average for Filtering (High Timeframe)" setting and select your desired timeframe (e.g., "D" for Daily). The strategy will then only enter trades if the upper Bollinger Band is above the specified moving average on that higher timeframe.

What is the difference between Wick and Close execution?

"Wick" execution enters a trade as soon as the price touches the upper band mid-candle. "Close" execution waits for the candle to finish above the upper band before entering on the open of the next bar.

How can I access the Bollinger Band Breakout?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.