Bollinger Bands Squeeze Strategy Explained
Discover how to trade volatility contractions with the Bollinger Bands squeeze and breakout setups.
Bollinger Bands measure volatility by plotting standard deviations above and below a moving average. When the bands narrow, it signals low volatility — a condition that often precedes a significant price move.
What Is the Bollinger Squeeze?
A squeeze occurs when the Bollinger Bands move inside the Keltner Channels, or more practically, when band width reaches a multi-period low. It means the market is compressing and a breakout is likely.
Trading the Squeeze
- Wait for band width to contract to its lowest level in 20+ periods.
- Enter a long position when price breaks above the upper band.
- Enter a short position when price breaks below the lower band.
- Place a stop-loss on the opposite side of the breakout.
Risk Management
Not every squeeze leads to a clean breakout. Some breakouts fail immediately and reverse. Use position sizing and avoid trading squeezes near major support/resistance without confirmation.
Try It in NeuroBacktest
Type: "Backtest Bollinger Bands squeeze breakout on TSLA from 2021 to 2024 with window 20 and std 2."