Bollinger Divergence hunts for extremes where price pierces a band yet the
opposite band begins to contract. This divergence between price momentum and
volatility often precedes a snap back toward the middle of the range.
A long signal appears when a candle closes beneath the lower band while the
upper band narrows by at least a set percentage. For shorts the pattern is
mirrored around the upper band. Positions target a quick move back to the
middle Bollinger line with an optional fixed take‑profit.
The setup performs best in range‑bound markets or after a volatility spike
begins to fade. The
CandlePercent parameter controls how much the opposite
band must contract before a trade is allowed, helping avoid whipsaws during
strong trends.
- Data: Price candles.
- Entry Criteria:
- Long: Close below lower band AND upper band contracts by CandlePercent.
- Short: Close above upper band AND lower band contracts by CandlePercent.
- Exit Criteria:
- Return to middle band OR take profit percentage.
- Stops: No hard stop; relies on take profit or manual exit.
- Default Values:
- BBLength = 20
- BBMultiplier = 2.0
- CandlePercent = 30
- TakeProfit = 5
- Filters:
- Category: Mean reversion
- Direction: Long & Short
- Indicators: Bollinger Bands
- Complexity: Simple
- Risk level: Medium