In the working paper's comparison, standard Bollinger Bands (20, 2) contained 82.64% of next closes, while the Behavioral Transform Model's outer band contained 94.00%, historically. This post is by Oisigma, a vendor, and describes that single test with its settings and limits.
One range from each indicator, scored by counting how often the next close landed inside it.
At ±1σ with comparable settings, BTM's inner band held ~69% against ~42%, a different setting and not the headline figure; the tests are detailed in what we found testing the popular bands. Past behavior is not a guarantee of future results.
Price-space bands scale with the price level, while a return-space band scales with how far returns have moved; see return space vs price space and the Bollinger band drift problem.
It does not show that Bollinger Bands are wrong or that BTM is profitable: the paper validates calibration, not the profitability of any use. BTM's containment also fell to about 65% at crisis onset, and the 97-year history is S&P 500 only.
Can Bollinger settings be changed to match?
Different settings change the measured rate. The figures above are for (20, 2) only.
Is this an independent test?
No. It is Oisigma's own, and the procedure is reproducible; see how to backtest a band indicator.
Where is the alternative described?
The Bollinger Bands alternative page.
See the Proof page, or try the Behavioral Transform Model: start with the 30-day free trial.
Oisigma provides descriptive market analytics for educational use. It is not investment advice, does not predict prices, and does not provide buy or sell signals. Statistics referenced are historical and were measured in our working paper (not peer-reviewed); past behavior is not a guarantee of future results. Trading and investing involve substantial risk of loss, including the possible loss of all capital invested. Leveraged products (futures, options, margin) carry additional risk and can result in losses that exceed your initial investment. Bollinger Bands® is a registered trademark of John Bollinger; Oisigma is not affiliated with or endorsed by Mr. Bollinger. RiskMetrics® is a registered trademark of MSCI Inc.; Oisigma is not affiliated with or endorsed by MSCI Inc. Nothing in this article is a recommendation to use any particular strategy. Read the full Disclaimer →
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