Modifying Entropy Trade Setup with Bollinger Bands %

The Entropy trading strategy was originally developed by Amit Ghosh during discussions about Bollinger Bands in the Unofficed forum. Over time, the strategy has undergone refinement and adaptation with the aim of enhancing profitability and precision.

The New Entropy Setup

One of the significant changes in the strategy involves the replacement of the Stochastic (Stocth) and Money Flow (Mflow) indicators with BB %B, also known as Bollinger Bands Percentage B.

BB %B Indicator: The Key Component

BB %B is a crucial component of the Entropy trading strategy. It’s a technical indicator that measures a security’s position relative to the Bollinger Bands. Specifically, it quantifies where the last price is in relation to the upper and lower Bollinger Bands.

You can copy the setup using the “Make it Mine” feature of Tradingview.

How BB %B Works:

• BB %B is calculated as follows: BB %B = (Last Price – Lower Band) / (Upper Band – Lower Band)
• BB %B provides a value between 0 and 1. When BB %B is close to 0, it indicates that the last price is near the lower Bollinger Band, suggesting potential oversold conditions. Conversely, when BB %B is close to 1, it signifies that the last price is near the upper Bollinger Band, implying potential overbought conditions.

Utilizing BB %B in the Entropy Strategy:

The replacement of Stochastic and Money Flow indicators with BB %B in the Entropy strategy introduces several advantages:

• Simplicity: BB %B simplifies the analysis by providing a clear and straightforward measure of a security’s position relative to its Bollinger Bands. In contrast, Stochastic and Money Flow indicators often involve more complex calculations and interpretations.
• Focused on Bollinger Bands: BB %B directly leverages the information provided by Bollinger Bands, aligning it closely with this well-established technical indicator. Stochastic and Money Flow indicators may not have the same direct connection to Bollinger Bands, making them less integrated into the trading strategy.
• Clarity in Overbought and Oversold Conditions: BB %B’s value ranges between 0 and 1, offering a clear indication of whether a security is trading near its upper or lower Bollinger Bands. A value close to 0 suggests potential oversold conditions, while a value near 1 implies potential overbought conditions. Stochastic and Money Flow indicators might not provide as straightforward signals regarding overbought and oversold levels.
• Versatility: BB %B can be effectively used across various time frames and markets, making it a versatile tool for traders. Stochastic and Money Flow indicators may have limitations or varying effectiveness in different trading scenarios.
• Alignment with Bollinger Bands: Since Bollinger Bands are widely recognized and utilized by traders, BB %B’s integration with this indicator enhances the strategy’s credibility and relevance. Stochastic and Money Flow indicators may not have the same degree of alignment with popular technical analysis tools.
• Consistency in Strategy: By replacing Stochastic and Money Flow indicators with BB %B, the strategy achieves greater consistency as it focuses on a single, well-defined indicator that directly relates to Bollinger Bands. This simplification can lead to more straightforward and consistent trading decisions.
• Optimization for Current Market Dynamics: The decision to replace indicators reflects a commitment to optimizing the strategy for current market conditions and insights. As markets evolve, strategies must adapt, and BB %B’s inclusion demonstrates this adaptability.

In summary, BB %B is favored over Stochastic and Money Flow indicators due to its simplicity, alignment with Bollinger Bands, clarity in identifying overbought and oversold conditions, versatility, and overall consistency within the trading strategy.

The evolution of the Entropy trading strategy demonstrates the dynamic nature of trading. Traders and developers continuously refine and adapt their strategies to changing market conditions and new insights. The decision to replace Stochastic and Money Flow indicators with BB %B reflects the strategy’s commitment to optimizing performance and staying aligned with current market dynamics.