Bollinger Bands Squeeze

The Bollinger Bands Squeeze indicator provides a visual histogram that identifies periods of low volatility where Bollinger Bands contract within Keltner Channels, signaling a potential market consolidation. This tool is designed to help traders avoid entering positions during sideways price action and prepare for volatility breakouts.

Usage

The indicator displays a histogram on a separate pane whenever a "squeeze" condition is met.

• Squeeze Identification: When the histogram is visible, the market is in a period of compression. This often indicates that the Bollinger Bands (2.0 standard deviations) have moved inside the Keltner Channels (1.5 ATR multiplier).
• Trading Strategy: A common approach is to refrain from entering new trades while the squeeze is active. Traders typically wait for the squeeze to end (the histogram disappears) and for price to break out of the Bollinger Bands to confirm a new trend direction.
• Binary Options & Scalping: Because it highlights low-volatility phases, it is frequently used in shorter-term strategies to avoid "fakeouts" during flat markets.

Details

The script calculates the relationship between Bollinger Bands and Keltner Channels to determine the squeeze state. Specifically:

1. It calculates the Average True Range (ATR) and Standard Deviation over a 20-period lookback.
2. A ratio is formed between the Bollinger Band width and the Keltner Channel width.
3. A squeeze is triggered when this ratio falls below 1, indicating that volatility is significantly lower than recent averages.
4. The script also incorporates a Commodity Channel Index (CCI) calculation internally to refine the state, though the primary output is the binary squeeze status.

Settings

• Keltner Period (Internal): Uses a 20-period ATR for the channel calculation.
• Keltner Factor (Internal): Set to 1.5 to define the outer boundary of the Keltner Channels.
• Bollinger Deviations (Internal): Set to 2.0 standard deviations.
• Bollinger Period (Internal): Uses a 20-period moving average for the band calculation.
• CCI Period (Internal): Uses a 50-period lookback for trend refinement.

FAQ

How do I interpret the histogram bars?

The presence of a histogram bar indicates that the market is currently in a "squeeze" state (low volatility). If no bar is visible, the Bollinger Bands are wider than the Keltner Channels, indicating normal or high volatility.

Can I use this for trend direction?

The Bollinger Bands Squeeze itself is a volatility indicator, not a directional one. It tells you when a move might happen soon, but you should use price action or other momentum oscillators to determine the direction of the breakout.

How can I access Bollinger Bands Squeeze?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.