Overview

This strategy trades breakouts of Bollinger Bands, taking counter trend positions when price fully pierces the upper or lower band. It aims to capture mean reversion after anomalous volatility. It suits active traders seeking quick profits.

Principle

The strategy uses Bollinger Bands to define the current volatility range. When price forms a full candlestick above the upper band or below the lower band, it indicates an highly volatile state and potential reversal towards the mean.

Specifically, the middle, upper and lower bands are calculated using 20-period closing prices. A long signal is generated when price closes below the lower band after opening higher. A short signal is triggered when price closes above the upper band after opening lower. The breakout point serves as the stop loss and the middle band is the initial profit target.

Advantages

The main advantages are:

1. Bollinger Bands gauge market volatility effectively to identify anomalies.

2. The breakout point is a clear stop loss level to control risk.

3. The middle band offers a sensible target for mean reversion.

4. Full candlesticks filter out false breaks with greater signal reliability.

5. Simple parameters make implementation and optimization easy.

6. Clean logic expressed concisely in the code.

Risks

Some risks include:

1. Poor BB parameters may invalidate the strategy.

2. Breakouts could signal trend start, risks premature exit.

3. Middle band targets may be too conservative, capping gains.

4. Wide breaks may not fully fill, causing slippage.

5. Whipsaws may induce excessive pointless trades in ranging markets.

Enhancements

Some enhancement considerations:

1. Gauge trend strength to adjust settings or frequency.

2. Add other indicators to fine tune entry timing.

3. Adjust stop loss based on volatility.

4. Optimize initial targets for smooth profits.

5. Implement re-entry mechanisms to compound gains.

6. Assess breakout validity to avoid bad trades.

Conclusion

The strategy trades BB breakouts for short term profits suiting active traders. Pros are clear risk control while cons are early exits and profit capping. Fine tuning parameters, adding filters etc. can improve performance.