Bollinger Bands Width with Squeeze Alert

The Bollinger Bands Width with Squeeze Alert indicator tracks volatility cycles by measuring the width of Bollinger Bands and highlighting periods of historical compression to identify potential breakout opportunities.

Usage

The indicator is primarily used to identify "The Squeeze," a condition characterized by exceptionally low volatility. When the Bollinger Bands Width (BBW) reaches its lowest point over a specified lookback period (defaulting to 125 bars), the background of the chart is highlighted. This signal indicates that the market is in a period of consolidation and that a significant expansion in volatility—a breakout—is likely imminent.

Traders often monitor these squeeze periods because high-volatility moves frequently follow low-volatility environments. While the squeeze identifies that a move is coming, it does not predict direction; therefore, it is often paired with price action analysis or other momentum oscillators to confirm the direction of the eventual breakout.

Details

The Bollinger Bands Width is calculated by taking the difference between the upper and lower Bollinger Bands and dividing it by the middle basis (SMA). This provides a normalized value of the band spread.

The "Squeeze" detection logic follows the definition popularized by John Bollinger: a squeeze occurs when the current BBW is lower than all other BBW values within the last N intervals. This implementation allows users to customize that lookback period to suit different timeframes and trading styles.

Settings

Basic Settings

• Back comparison period for squeeze detection (bars): Determines the lookback window used to identify the lowest BBW value. A higher value requires more extreme compression to trigger a squeeze alert.
• Length: The period used for the Simple Moving Average (SMA) and Standard Deviation calculations of the Bollinger Bands.
• Source: The price data point used for calculations (typically the Close).
• Mult: The Standard Deviation multiplier that determines the width of the underlying Bollinger Bands.

FAQ

How do I use the squeeze signal effectively?

The squeeze signal indicates low volatility. Traders typically wait for the squeeze to end (the background highlight disappears) and for price to break above or below the bands or a key structure to enter a trade in the direction of the expansion.

What does a "fakeout" mean in this context?

Before a major trend begins following a squeeze, price sometimes moves briefly in one direction to trap traders before reversing and trending strongly in the opposite direction.

How can I access Bollinger Bands Width with Squeeze Alert?

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