Bollinger Band Squeeze
Definition
A Bollinger Band Squeeze is a period when the Bollinger Bands contract to their narrowest width in a lookback window, showing that volatility has compressed and a larger move may follow.
Example
“After an hour-long Bollinger Band Squeeze, XYZ closed above the upper band on twice its average volume.”
Detailed Explanation
Band width is usually measured as the distance between the upper and lower band divided by the middle band. A squeeze is flagged when that width falls to its lowest level in a set lookback, such as the last 100 bars. The idea rests on volatility clustering: quiet periods tend to be followed by more active ones, because volatility drifts back toward its normal level.
The squeeze tells you that a move is likely to get bigger. It does not tell you which way price will break. Traders wait for a close outside the bands, ideally with rising volume, and keep the stop inside the compressed area, which is why the setup offers tight risk. False starts are common, so many traders require the break to hold for a bar or two. This setup is unrelated to a short squeeze, which is forced buying by short sellers.
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