Bollinger Band Squeeze
A period when Bollinger Bands narrow sharply around price, reflecting unusually low volatility, often watched as a setup that frequently precedes a sharp breakout in either direction.
A Bollinger Band squeeze occurs when Bollinger Bands (see Kaavon's "Bollinger Bands" glossary definition) narrow sharply around price, reflecting a period of unusually low, contracting volatility relative to the asset's recent history. Because volatility tends to cycle between quiet and active periods, a squeeze is commonly watched as a setup that frequently precedes a sharp expansion in volatility and a breakout (see Kaavon's "Breakout (and Breakdown)" glossary definition) in one direction or the other.
A Bollinger Band squeeze on its own doesn't indicate which direction the eventual breakout will favor, only that volatility has compressed to an unusual degree and a larger move may be approaching — traders typically combine a squeeze observation with other signals, such as volume, market structure (see Kaavon's "Market Structure" glossary definition), or a specific chart pattern, to form a view on the breakout's likely direction rather than relying on the squeeze alone.
Examples
- A Bollinger Band squeeze, where the bands narrow sharply around price, is commonly watched as a sign that a period of low volatility may soon give way to a sharp breakout.
- A Bollinger Band squeeze alone doesn't indicate which direction a breakout will favor, which is why traders typically combine it with other signals to form a directional view.