Breakouts · Intermediate
Bollinger Band squeeze
When the bands are the narrowest in months, volatility is about to expand. Trade the candle that closes outside the bands.
John Bollinger created his bands in the early 1980s: a 20-period moving average with lines two standard deviations above and below. He named the moment when the bands become unusually narrow "the squeeze", the calm before a volatility expansion.
Why it works
Volatility is mean-reverting: very low volatility tends to be followed by high volatility. The bands measure it directly, so a squeeze is an objective way to spot coiled markets.
Bollinger warned about the "head fake": the first move out of a squeeze is often false, so a confirmation or a retest filter helps.
The rules
Setup
- Bollinger Bands (20, 2). Measure the bandwidth: (upper − lower) ÷ middle.
- Squeeze: bandwidth at its lowest level of the last 120 candles or so.
Entry
- Buy when a candle closes above the upper band; sell when one closes below the lower band.
- Head-fake filter: wait for the second close outside, or for a retest of the band that holds.
Stop loss
- On the opposite side of the middle band, or at the opposite band for wider stops.
Exit and management
- Trail the stop along the middle band (20-period average) while the bands widen.
- Exit when price closes back inside on the other side of the middle band.
Filters that improve it
- Volume or a higher-timeframe trend in the breakout direction increases the odds.
Worked example
Illustrative gold example on 1H: bandwidth falls to its lowest in five days, bands at $2,318–$2,330. A candle closes at $2,334, above the upper band. Entry at $2,334, stop below the middle band at $2,322, then the stop is trailed under the middle band as it rises; it exits at $2,361.
Illustrative numbers, not a recommendation.
Common mistakes
- Selling because price touches the upper band during a squeeze breakout: in an expansion, price "walks the band".
- Trading the first wick out of the squeeze without a close.
How to practise it
In Candlemind enable Bollinger Bands and look for the narrowest section on 1H before reading. Mark it, read forward and only act on a close outside the bands.
Pre-trade checklist
- Bands at their narrowest in ~120 candles
- Candle closed outside the bands
- Head-fake check (second close or retest)
- Stop beyond the middle band
Frequently asked questions
What settings are used for the squeeze?
The standard 20-period, 2 standard deviation bands. Bandwidth is compared with its own recent history.
What is a Bollinger head fake?
A first move out of the squeeze that quickly reverses, trapping breakout traders before the real move in the other direction.