This setup monitors the width of the Bollinger Bands to detect periods of low volatility. When the bands contract relative to their recent average, it signals a potential volatility expansion is near.
Once a squeeze is identified, the strategy waits for price to break outside the bands. A close above the upper band initiates a long, while a close below the lower band opens a short. The trade is closed if price returns toward the middle of the bands or if a stop-loss is triggered.
The method targets traders who like to trade volatility breakouts rather than trend continuation. Using the band width as a filter helps avoid false signals during choppy conditions.
- Entry Criteria:
- Long: Band width < average width && Close > upper band
- Short: Band width < average width && Close < lower band
- Long/Short: Both sides.
- Exit Criteria:
- Long: Exit when price drops back inside the bands
- Short: Exit when price rises back inside the bands
- Stops: Yes, typically at 2*ATR.
- Default Values:
- BollingerPeriod = 20
- BollingerMultiplier = 2.0m
- LookbackPeriod = 20
- CandleType = TimeSpan.FromMinutes(5)
- Filters:
- Category: Breakout
- Direction: Both
- Indicators: Bollinger Bands
- Stops: Yes
- Complexity: Intermediate
- Timeframe: Intraday
- Seasonality: No
- Neural networks: No
- Divergence: No
- Risk Level: Medium