What Is the Bollinger Band Reversal Strategy

One close outside, the next back inside

The Bollinger Band reversal strategy is built on a pair of closes: one outside a band, and the next back inside. A Bollinger Band is a line drawn two typical steps above or below the average of the last twenty closes, where a typical step is how far those closes usually strayed from their average. Take gold on 14 May 2025. The average of the last twenty closes was 3313.77 and the typical step was 62.53, so the lower band stood at 3188.71. The close was 3177.35, 11.36 below it. The next day, 15 May, the close was 3239.63, back inside by 59.33. That pair is what the strategy watches for.

A wave past the tide line

Picture a beach with its tide line. The line is drawn from where the water has reached over the last while, and the band is that line: it comes from where the price has been over the last twenty days, not from anywhere the price ought to be. A wave runs past the line; then the water draws back below it. The strategy does nothing at the first picture, because a wave past the line is only a wave that is stretched, and it can stretch further. It waits for the second picture, the water back inside, and that is its cue. Which band the water crossed says which way the strategy is looking.

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