My Bollinger-Band-Based Swing Trade System in Action

SPLK-b-to-b-tradePreviously I described a swing trading system using Bollinger bands here. I just completed a trade using this system, and I’ll describe it to you. It’s hardly breaking the bank, but the trade was a winner and that beats the alternative!

On December 17th, 2014, I received a signal to enter Splunk Inc (SPLK). The criteria you can read about in that previous post, but essentially the entry point is four bars with their lows below the Bollinger band, followed by a green bar with the low above the Bollinger band. Meanwhile, a 50-day moving average (beige line) must be above the 70-day moving average (green line).

The entry signal is marked above, and I enter the next day upon the opening bell. I set a stop loss of 14%, which is a “soft” stop. In other words, if the close of the day falls below the entry price * .86, I exit the following day at open. This is not a hard stop set with the broker that can be triggered on intraday movements.

Otherwise, the exit is something like the mirror image of the entry. I watch for the highs to ‘pierce’ the upper Bollinger band. When they do, I look for the first day that does NOT pierce its Bollinger band. At which point, I exit the following day. The exit-signal day shown above was for yesterday, and I exited this morning (but don’t have the end-of-day data to show it on a graph yet).

If you look closely, you’ll notice that the bar prior to the green entry-signal bar does not actually have its low piercing the Bollinger band. “What’s up with that?” you ask. I actually entered into this trade before I realized that a Bollinger band with a period of 15 worked slightly better than the standard 20. So the entry was based on a 20-period band, but the exit would have been the same for either type of Bollinger band.

This was a long and boring swing trade: 36 trading days. Sometimes I wanted to shake my computer monitor and shout “C’mon Splunk! DO SOMETHING!” And many times I would yell (in my head) “NO, do something the OTHER direction!” And over all that time I made just under 2% before commissions. Not exactly stunning, but it does show you how the system works.¬†And I did outperform the S&P 500 during this period by .7%. Which, given the recent turbulence, is nothing to sneeze at.

Charts can be a little boring so here's a random image...this one a double-exposure shot in Las Vegas.
Charts can be a little boring so here’s a random image…this one a double-exposure shot in Las Vegas.

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