Optimizing Commodity Futures Trading in the Financial Market: Fine-tuning Bollinger Bands Strategy

Abstract

Technical trading methodologies are frequently utilized to project fluctuations in stock prices; however, the Bollinger Band Trading Strategy (BTS) remains comparatively under-researched relative to alternative techniques. Notably, BTS exhibits remarkable proficiency in predicting sudden price alterations and securing short-term gains, even amidst significantly volatile market conditions. This investigation seeks to enhance BTS by implementing a contrarian framework that incorporates diverse configurations of moving averages (MAs) (20, 30 and 50) and standard deviations (SDs) (1.5, 2, 2.5 and 3) within its paradigm. The performance of these optimized configurations is further compared to alternative technical indicators, such as the relative strength index (RSI) and moving average convergence divergence (MACD), within the Indian commodity futures market, focusing on Crude Oil, Gold and Silver. The analysis reveals that optimized BTS settings consistently outperform RSI and MACD for all three commodities. The most effective configurations for maximizing cumulative holding period returns are Crude Oil (50MA, 2SD), Gold (50MA, 1.5SD) and Silver (30MA, 1.5SD). Similarly, the best setups for average holding period returns are Crude Oil (20MA, 3SD), Gold (30MA, 3SD) and Silver (50MA, 3SD). These findings establish optimized BTS as a valuable tool for investors, offering data-driven insights to minimize risks and enhance returns in commodity markets.