A period when Bollinger Bands narrow to an unusually tight range, indicating low volatility that tends to be followed by an expansion.
The squeeze is usually defined by bollinger-band-width reaching a low percentile of its own recent history, and the popular version marks the moment the bands contract inside a keltner-channel.
The empirical basis is volatility clustering, which is one of the more robust features of financial time series: quiet periods tend to follow quiet periods until they abruptly do not. Contraction leading to expansion is a genuinely supported tendency.
What is not supported is direction. The squeeze tells you something is coming, not which way, and first breaks out of a squeeze fail often enough that many traders trade the second move rather than the first. Treat it as a signal to prepare and to size for larger ranges, not as a directional call.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Bollinger bands: squeeze and expansion. The middle line is a 20-day average and the outer bands sit a set number of standard deviations away, so they measure how far price has recently been straying. When moves are small the bands pinch together; when moves grow they spread apart.Range versus trend. On the left price keeps bouncing between the same floor and ceiling, which is a range. On the right each high and each low is higher than the last, inside a pair of sloping lines called a channel.
Educational only, not advice. Spotted an error? Post in Site Feedback.