Indicators
Bollinger Bands squeeze
Bands drawn two standard deviations above and below a 20-period average. When they narrow, volatility is unusually low (a “squeeze”).
Why it works
Low volatility does not last. A squeeze often comes right before an expansion: a strong move in one direction.
How to use it
When the bands are at their tightest, prepare for a breakout. Trade the first close outside the bands in the direction of the higher-timeframe trend.
The typical mistake
Selling every touch of the upper band: in a strong trend, price can ride the band for a long time.
FAQ
What is Bollinger Bands in trading?
Bands drawn two standard deviations above and below a 20-period average. When they narrow, volatility is unusually low (a “squeeze”).
How do you trade Bollinger Bands?
When the bands are at their tightest, prepare for a breakout. Trade the first close outside the bands in the direction of the higher-timeframe trend.