Bollinger Bands Squeeze Indicator

The Bollinger Bands Squeeze Indicator is a powerful tool for identifying periods of low volatility that often precede significant price movements. When the Bollinger Bands contract or “squeeze,” it signals that volatility is decreasing, which frequently leads to explosive breakout moves.

Understanding the Bollinger Bands Squeeze

A Bollinger Bands squeeze occurs when volatility reaches a low point, causing the bands to narrow significantly. This compression of the bands indicates that the market is “coiling” like a spring, storing energy for a potential large move in either direction.

Key Concepts

• Volatility Contraction: Measured by the narrowing distance between the upper and lower Bollinger Bands
• Momentum Buildup: Often accompanied by decreasing volume before the breakout
• Breakout Direction: Can be determined by additional momentum indicators or price action

Indicator Features

• Visual identification of squeeze conditions with color-coded histogram
• Customizable Bollinger Bands parameters (period and standard deviation)
• Squeeze intensity measurement
• Optional Keltner Channel integration for confirmation
• Alert system for squeeze formation and release

How to Use This Indicator

1. Identify the Squeeze: Look for the histogram to change color, indicating a squeeze is forming
2. Prepare for Breakout: When the squeeze is at its tightest point, prepare for a potential trade
3. Confirm Direction: Use price action or momentum indicators to confirm the breakout direction
4. Enter the Trade: Once the breakout direction is confirmed, enter in that direction
5. Manage Risk: Set stop losses based on the recent volatility range

Trading Strategy Example

Bollinger Bands Squeeze Breakout Strategy

1. Wait for a squeeze to form (histogram changes color)
2. Look for the squeeze to release (histogram changes back)
3. Enter in the direction of the breakout when price closes outside the Bollinger Band
4. Set stop loss at the opposite Bollinger Band
5. Take profit at 2-3 times your risk or at the next significant support/resistance level

Installation and Setup

1. Download the indicator file
2. Place it in your MetaTrader indicators folder
3. Restart your platform or refresh the navigator window
4. Drag the indicator onto your chart
5. Adjust parameters as needed:
   • Bollinger Bands Period: 20 (default)
   • Standard Deviation: 2 (default)
   • Squeeze Threshold: 0.5 (default)

Best Timeframes

The Bollinger Bands Squeeze works on all timeframes but is particularly effective on:

• H1 (1-hour) for day trading
• H4 (4-hour) for swing trading
• D1 (daily) for position trading

Always combine this indicator with sound risk management principles and other forms of analysis for optimal results.