Chapter 3 How to Profit from the Bollinger Squeeze
Bollinger Squeeze
When the upper and lower Bollinger Bands are moving towards each other, or the distance between the upper and lower bands is narrow (on a relative basis), it is a suggestion that the market under review is consolidating.
A consolidation phase suggests that the market is non-directional for the time being and now rangebound in nature. The narrow or narrowing Bollinger Bands will essentially move closer to the price and at some stage appear to be ‘Squeezing’ the price. It is at this stage that breakout traders might pay attention.
The Bollinger Band Squeeze occurs when volatility falls to low levels. Therefore, a volatility contraction or narrowing of the bands can foreshadow a significant advance or decline.
A sharp price movement tends to come after the bands have tightened significantly. When the bands tighten it means that the price is being contained to a very small range, and that condition can’t last forever.
When the price moves above the high of the range and penetrates the upper Bollinger Band, go long/buy calls. When the
Report
