Strategies School / Trend & Indicators
Bollinger Band Squeeze
Intermediate ยท 8 min read
Volatility moves in cycles. When the bands tighten, a larger move often follows.
What it is
Bollinger Bands plot a 20-period moving average with bands two standard deviations above and below. The distance between them shows volatility.
A squeeze is when the bands narrow to a multi-week tight range. Quiet periods tend to be followed by expansion, though the direction is unknown in advance.
Wait for a candle to close outside the bands with the bands expanding, ideally in the direction of the higher timeframe trend.
How to spot it
- Look for bandwidth at or near its lowest level in recent weeks.
- Wait for a strong close outside a band.
- Check that the bands begin to widen.
- Trade in the direction of the break, with a stop back inside the bands.
Trade plan
- Entry: On a close outside the band after the squeeze, or on a small retest.
- Stop loss: Back inside the bands, for example at the middle band.
- Target: Trail with the middle band or use a 2R target.
Common mistakes
- Wrong: Guessing direction during the squeeze. Right: Wait for the breakout.
- Wrong: Treating every close outside a band as a reversal. Right: In strong moves, price can walk along the band.
Pro tip: Combine with the higher timeframe trend. Squeezes that break in the trend direction have better odds.
Quiz
- A Bollinger squeeze means the bands are: Answer: Very narrow. Low volatility narrows the bands.
- During the squeeze, the direction is: Answer: Not known until the breakout. Wait for the break.
- A sensible stop for a breakout trade is: Answer: Back inside the bands. A return inside the bands suggests the breakout failed.
Educational content, not financial advice. Diagrams are illustrations, not real market data.