This is known as the Bollinger Bands Squeeze. The onset of a Squeeze is often followed by high volatility. Take a look at the image below to understand this visually. The purple box is the period of historically low volatility followed by a period of expanding volatility in the yellow box.
What is a purple box in a Bollinger Bands squeeze?
The purple box is the period of historically low volatility followed by a period of expanding volatility in the yellow box. The significance of the Bollinger Bands Squeeze is that it is a trading signal. You can use it to plan your next move. One potential way to do this is to observe how the bands behave during a burst of volatility.
What is the Bollinger Band Squeeze Strategy?
The Bollinger Band Squeeze is a straightforward strategy that is relatively simple to implement. First, look for securities with narrowing Bollinger Bands and low BandWidth levels. Ideally, BandWidth should be near the low end of its six-month range. Second, wait for a band break to signal the start of a new move.
What does a Bollinger squeeze mean?
A Bollinger Squeeze is known to be followed by a breakout above or below the band. A breakout above the upper band implies that the price is about to decline while a breakout below the lower band means that the price is about to rise.
