The Bollinger Bands Squeeze is one of the most powerful and sought-after signals when using the Bollinger Bands indicator. It signals a period of low market volatility that is about to end, foreshadowing a significant price move.
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A technical analysis indicator consisting of three lines:
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Middle Band: A 20-period Simple Moving Average (SMA).
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Upper Band: Middle Band + (2 x Standard Deviation).
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Lower Band: Middle Band - (2 x Standard Deviation).
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The upper and lower bands expand and contract based on market volatility.
A Bollinger Bands Squeeze occurs when the upper and lower bands contract and move closer together. This indicates:
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The market is in a "consolidation" or quiet phase.
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Price volatility is extremely low.
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Buying and selling pressure is in equilibrium.
Visually, the bands coiling tightly resembles a squeeze, compressing the market's energy and tension.
3. The Meaning: It Forecasts a Major Move"The tighter the squeeze, the bigger the move." When the bands begin to expand again after a squeeze, it is a clear signal that:
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The consolidation phase is over.
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A new, strong trend is about to begin.
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The price will "break out" of the trading range with high momentum.
Crucial Note:
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The Squeeze only warns of an imminent volatile move; it does not predict the direction.
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The breakout direction (up or down) must be confirmed using:
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A sharp increase in trading volume.
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Other technical signals (candlestick patterns, RSI, etc.).
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In summary, the Bollinger Bands Squeeze is an excellent tool for identifying when the market is "quiet before the storm." When you spot a squeeze, traders should prepare for a substantial price movement.
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