The Squeeze — Volatility Begets Volatility

The phenomenon

Volatility clusters and mean-reverts: extreme quiet precedes extreme movement. When BandWidth hits multi-month lows (the squeeze), the market is coiling — energy compresses before release. The squeeze does NOT predict direction, only IMMINENCE: breakouts from squeezes tend to be sharp and sustained because positioning is flat and stops are tight on both sides.

Trading it honestly

The squeeze play: identify the coiled range, place orders for a close OUTSIDE the range (either side), with the stop inside. You pay for not knowing direction by taking whichever side confirms — and expect failures: first breaks from squeezes fail often (stop-run dynamics); the retest of the broken band edge is the higher-quality entry, as with all breakouts (day 11).

The trap

Squeezes resolve MOST often in the direction of the preceding trend, but "most often" is ~60%, not certainty. And the squeeze can re-squeeze — one false breakout does not end the coil. Squeeze trading is a patience strategy: many small failures, few large wins. Size accordingly.

Sources

• Bollinger Band SqueezeInvestopedia
• Bollinger on Bollinger BandsJohn Bollinger