A Bollinger Band Squeeze is a condition that occurs when the Bollinger Bands narrow due to decreased volatility. According to John Bollinger, periods of low volatility are often followed by periods of high volatility. Therefore, a volatility contraction or narrowing of the bands can foreshadow a significant advance or decline. Once the squeeze play is on, a subsequent band break signals the start of a new move. A new advance starts with a squeeze and subsequent break above the upper band. A new decline starts with a squeeze and subsequent break below the lower band.
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The Head Fake
ByadminIn his book, Bollinger on Bollinger Bands, John Bollinger advises chartists to beware of the “head fake.” This occurs when prices break a band, then suddenly reverse and move the other way, similar to a bull or bear trap. A bullish head fake starts when Bollinger Bands contract and prices break above the upper band. This…
The Bottom Line
ByadminThe Bollinger Band Squeeze is a trading strategy designed to find consolidations with decreasing volatility. In its purest form, this strategy is neutral and the ensuing break can be up or down. Chartists, therefore, must employ other aspects of technical analysis to formulate a trading bias to act before the break or confirm the break….
Tweaking
ByadminBecause the Bollinger Band Squeeze does not provide any directional clues, chartists must use other aspects of technical analysis to anticipate or confirm a directional break. In addition to basic chart analysis, chartists can also apply complimentary indicators to look for signs of buying or selling pressure within the consolidation. Momentum oscillators and moving averages…
How Do You Set Up the Indicators?
ByadminBefore looking at the details, let’s review some key indicators for this trading strategy. First, for illustration purposes, note that we are using daily prices and setting the Bollinger Bands at 20 periods and two standard deviations, the default settings. These can be changed to suit one’s trading preferences or the characteristics of the underlying…
Trading Signals
ByadminEven though the Bollinger Band Squeeze is straightforward, chartists should at least combine this strategy with basic chart analysis to confirm signals. For example, a break above resistance can be used to confirm a break above the upper band. Similarly, a break below support can be used to confirm a break below the lower band….
Bollinger Band Squeeze
ByadminThis scan divides the difference between the upper band and the lower band by the closing price, which shows BandWidth as a percentage of price. In general, BandWidth is narrow when it is less than 4% of price. Chartists can use higher levels to generate more results or lower levels to generate fewer results. [type…