John Bollinger invented Bollinger Bands way back in the 1980s. His indicator uses standard deviation to determine support and resistance levels.
Price is viewed as overextended at the upper or lower bands, which are considered resistance or support areas. Traders often look for price to revert to the mean at the upper or lower bands.
The Bollinger Bandit strategy does the opposite and looks for breakouts above the upper band and below the lower band.
Normally the middle band is set to 20 periods and the outer bands are set 2 standard deviations above and below the middle band.
The Bollinger Bandit strategy sets the middle band to 50 periods and the outer bands are set 1 standard deviation above and below the middle band.
In order to take a long trade when price breaks out above the upper band or a short trade when price breaks out below the lower band one condition must be met.
The close of the period must be greater than the close of 30 periods ago for a long position and the close of the period must be less than the close of 30 periods ago for a short position.
When a position is initiated, the protective stop is set at the 50-period moving average.
The Bollinger Bandit strategy is usually traded on the daily timeframe.