Larry Connors’ %b Strategy (Bollinger Band) | Trading Strategies Explained

In chapter 5 of Larry Connors‘ book High Probability Trading, published in 2009, there is a trading strategy called %b strategy. The book contains many strategies which we test in chronological order. 12 years have passed since the book was published and it could be interesting to see if the strategies are still performing well. Larry Connors tested 20 ETFs from their inception up until the end of 2008, while we test from inception until today.

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Table of contents:

What is the %b?

Before we start we need to explain the rather cryptic name “%b”. The “%” is a percentage and the “b” is an abbreviation for Bollinger Bands. Connors describes the indicator like this in his book:

The higher the %b reading, the more likely that the market has moved higher. The lower the %b reading, the more likely the market’s trend has been lower. Traders ideally want o buy a low %b reading and sell higher %b readings.

The BBandBot and BBandTop are the lower and upper Bollinger Bands.

The indicator usually fluctuates between 0 and 1. However, when the ETF is very overbought and above the upper Bollinger Band, the value is above 1. Opposite, when it’s oversold and below the lower Bollinger Band the value is below zero. The strategy is a mean-revertive one.