Bollinger Band squeeze

A squeeze is a period when Bollinger Bands pinch together because recent volatility has fallen. Traders treat the pinch as a warning that a larger move may be coming, then trade the breakout in the direction price leaves the squeeze. The squeeze itself has no direction. Bandwidth, the width of the bands relative to the middle band, is the usual way to measure it.

Not investment advice. Nothing here is a recommendation to buy or sell anything. Backtests and historical studies are not guarantees, and a rule that worked in one sample can fail in the next. Trading can lose money. Links are for education, not endorsements. Do your own research.

Rules

John Bollinger's BandWidth falling to a low reading marks the squeeze. A related version asks for the Bollinger Bands to sit inside the Keltner Channels, then enters when price closes outside the bands and a momentum indicator such as MACD or RSI agrees on direction. Exits use a multiple of the squeeze range, a return inside the bands, or a trailing stop. No trade is taken while the bands are still tight.

Where AI fits

AI can detect the low-volatility state and then classify the break direction from momentum, volume, and higher-timeframe trend, instead of buying the first tick out of the squeeze. It can also measure how often squeezes resolve into nothing, which a chart example will not show. The detection rule should be frozen before the outcome is inspected.

Markets

Index futures, FX, and stocks ahead of a known catalyst, with the caveat that scheduled news can gap through the level.

Timeframes

15-minute to daily. The squeeze is a volatility state, so it appears on whatever chart you define it on.

Risks

Low volatility can last longer than the backtest expects, and the first break is often a fake. Direction filters added after seeing the results leak information. A squeeze into an earnings gap can skip the entry and the stop.

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