Differences

This shows you the differences between two versions of the page.

--- trading_strategies:bollinger_band_squeeze [2019/06/24 19:39]
127.0.0.1 external edit
+++ trading_strategies:bollinger_band_squeeze [2023/09/06 21:21]
jayanthi [Bollinger Band Squeeze]
@@ Line 1: / Line 1: @@
 ====== Bollinger Band Squeeze ======
-===== Introduction =====
+===== What Is a Bollinger Band Squeeze? =====
-The Bollinger Band Squeeze occurs when volatility falls to low levels and the Bollinger Bands narrow. According to John Bollinger, periods of low volatility are often followed by periods of high volatility. Therefore, a volatility contraction or narrowing of the bands can foreshadow a significant advance or decline. Once the squeeze play is on, a subsequent band break signals the start of a new move. A new advance starts with a squeeze and subsequent break above the upper band. A new decline starts with a squeeze and subsequent break below the lower band.
+A Bollinger Band Squeeze is a condition that occurs when the Bollinger Bands narrow due to decreased volatility. According to John Bollinger, periods of low volatility are often followed by periods of high volatility. Therefore, a volatility contraction or narrowing of the bands can foreshadow a significant advance or decline. Once the squeeze play is on, a subsequent band break signals the start of a new move. A new advance starts with a squeeze and subsequent break above the upper band. A new decline starts with a squeeze and subsequent break below the lower band.
-===== Defining the Indicators =====
+===== How Do You Set Up the Indicators? =====
-Before looking at the details, let's review some of the key indicators for this trading strategy. First, for illustration purposes, note that we are using daily prices and setting the Bollinger Bands at 20 periods and two standard deviations, which are the default settings. These can be changed to suit one's trading preferences or the characteristics of the underlying security. Bollinger Bands start with the 20-day SMA of closing prices. The upper and lower bands are then set two standard deviations above and below this moving average. The bands move away from the moving average when volatility expands and move towards the moving average when volatility contracts.
+Before looking at the details, let's review some key indicators for this trading strategy. First, for illustration purposes, note that we are using daily prices and setting the Bollinger Bands at 20 periods and two standard deviations, the default settings. These can be changed to suit one's trading preferences or the characteristics of the underlying security. Bollinger Bands start with the 20-day SMA of closing prices. The upper and lower bands are then set two standard deviations above and below this moving average. The bands move away from the moving average when volatility expands and towards the moving average when volatility contracts.
 {{:trading_strategies:bollinger_band_squeeze:ts-bbsqz-01-gps-exam.png|Chart 1  -  Bollinger Band Squeeze}}
@@ Line 13: / Line 13: @@
 There is also an indicator for measuring the distance between the Bollinger Bands. Appropriately, this indicator is called Bollinger BandWidth, or just the BandWidth indicator. It is simply the value of the upper band less the value of the lower band. Understandably, stocks with higher prices tend to have higher BandWidth readings than stocks with lower prices. If price equals 100 and BandWidth equals 5, then BandWidth would be 5% of the price. If price equals 20 and BandWidth equals 1, then BandWidth would also be 5% of price. Keep this in mind when using the indicator.
-===== Strategy =====
+===== How the Strategy Works =====
 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. An upside bank break is bullish, while a downside band break is bearish. Note that narrowing bands do not provide any directional clues. They simply infer that volatility is contracting and chartists should be prepared for a volatility expansion, which means a directional move.
@@ Line 56: / Line 56: @@
 {{:trading_strategies:bollinger_band_squeeze:ts-bbsqz-07-nue-fake.png|Chart 7  -  Bollinger Band Squeeze}}
-===== Conclusion =====
+===== The Bottom Line =====
 The Bollinger Band Squeeze is a trading strategy designed to find consolidations with decreasing volatility. In its purest form, this strategy is neutral and the ensuing break can be up or down. Chartists, therefore, must employ other aspects of technical analysis to formulate a trading bias to act before the break or confirm the break. Acting before the break will improve the risk-reward ratio. Keep in mind that this article is designed as a starting point for trading system development. Use these ideas to augment your trading style, risk-reward preferences and personal judgments. [[https://stockcharts.com/h-sc/ui?s=SPY&p=D&b=5&g=0&id=p94673282496|Click here]] for a chart of the S&P 500 ETF with Bollinger Bands and the BandWidth indicator.
@@ Line 74: / Line 74: @@
   and [[[Upper BB (20,2) - Lower BB (20,2)] / Close ] < .04]
 </code>
+===== Bollinger Band Squeeze FAQs =====