From the tradingview.com article here.
1. Bollinger Band Squeeze Trading Strategy
Bollinger Bands are a popular technical analysis tool that measures market volatility using standard deviations. When the bands come close together, it's known as a 'squeeze', indicating temporarily decreased market volatility.
Trading the Bollinger Band squeeze can be effective in identifying potential price moves when overall volatility is high, as a squeeze indicates periods of consolidation before a potential breakout. It’s one of the most common strategies traders use when learning how to trade volatile markets.
Entry/Exit Criteria
These are criteria you may consider when using this strategy.
Entry
· Observe for the Bollinger Bands to constrict or 'squeeze' closer together.
· Keep an eye out for a spike in trading volume. A surge often accompanies a breakout.
· For a potential bullish breakout, traders often enter long when the price closes above the upper band.
· For a potential bearish breakout, traders might consider entering short when the price closes below the lower band.
Stop Losses
· For long entries, traders often place the stop loss slightly below the lower Bollinger Band or the recent swing low.
· For short entries, the stop loss can be placed just above the upper Bollinger Band or the recent swing high.
Take Profits
· Traders might think about taking profits when the price touches the opposite Bollinger Band. For instance, if entered on a bullish breakout, consider taking profits when the price reaches the lower Bollinger Band.
· Alternatively, if using other indicators in conjunction, one could assess the momentum and decide on a suitable exit point based on those signals.
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