Bollinger Band / Moving Average

Quant Trading Strategies & Ideas
1
Request your help in clarifying the following while actually doing the trade.
I am doing Mean Reversion using the Bollinger Band concept while using Moving Average and Moving SD with a look back period of 5 days. 
In Quantinsti examples, as I understand you take data as 4 + 1 for calculation of Moving Average and STD.Moving Average & SD will get calculated by 4 previous data points(last 4 day close price) AND Last trading Price. This is quite a dynamic way to calculate Moving average & SD. Just wondering if my understanding is correct.
In my experience this is giving an issue which I am not able to resolve. Say I am using 1.0 as Z for trigger (Short) and by EOD the Z score is around 0.9 which is also a good entry point. However, I somehow ignored this and did not take trade. Next day, moving average takes in account Current Prices and due to this Z may get substantially reduced from 1.0 although spread may be increasing. 
 
I hope I am able to articulate the problem. Request your view on this.
2

Hi Aparna,



The 4 previous data points(last 4-day close price) and Last trading Price seems from a live trading example. Because in backtesting, the last trading price would be the previous close.



You are correct in understanding that this is quite dynamic in the live trading scenario as it takes the incomplete candle data to compute the indicator values.



The problem you are facing in z score falling at gap down in the next day is a problem which is inherent with lagging indicators. You should consider adding some other technical indicator to work along with the z-score to work as a two step trigger.



Jope this helps!