Forex bollinger band squeeze screener

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Market volatility is often cyclical in nature. Volatility is high when the market trends, and subsequently falls when prices consolidate. The Bollinger Bands therefore alternate between periods of expansion and contraction. It quantifies the expansion and contraction of the Bollinger Bands.

Reduced volatility often happens before major economic announcements, where the vast majority of market participants wait on the sidelines, ready to jump onboard a trend should a breakout occur. Large BBWR values indicate strong market trends. Sudden spikes in BBWR indicate a parabolic market move, which often spells the impending end of a trend. The idea is to use a period BBWR to detect a squeeze, which could signal an upcoming breakout.

Quantifying a visual pattern is always a challenge in algorithmic trading. An uptrend is present if the current close is above the close 50 periods ago. I find this simple combination works surprisingly well for trend following strategies. The simplest one is that a Squeeze is triggered when BandWidth drops to its lowest level in six months.

For some years there has been an academic theory in circulation that suggests that while price is neither cyclical nor forecastable, volatility is both. The most important aspect of this theory of volatility, that low volatility begets high volatility, and high volatility begets low. If it is a quiet day, expect a storm. If it is a stormy day, expect quiet. As you'll see if you look at some of the scan results, sometimes that 6-month low doesn't result in an impressive tightening of the bands.

If you don't see an obvious tightening in the bands I'd say to just skip that stock. Here are a couple of charts showing Squeezes: To quote Bollinger again: An important use of BandWidth is to mark the beginning of directional trends, either up or down. Many trends are born in trading ranges when the BandWidth is quite narrow. A breakout from the trading range that is accompanied by a sharp expansion in BandWidth is often the mark of the beginning of a sustainable trend However, note that not all of those squeezes turned into big expansions in volatilty.

There are no guarantees of what will happen once a Squeeze ends! Nor does it guarantee high volatility is coming. Volatitlity could simply gradually increase. Using the Squeeze as a Trade Setup A Squeeze is simply a precondition for a possible volatility breakout. John Bollinger has laid out some simple steps for trading based on a Squeeze: Use the Squeeze as a setup. Then go with an expansion in volatility.

Beware the head fake. An attempted move lower will reverse higher. That attempted breakdown may often also touch or break below the lower band. You'll see the opposite for attempted breakouts. Use volume indicators for direction clues.

Is volume picking up on up days? Does the range narrow on down days? What is the relationship of the open to the close? Each piece of evidence helps forecast the direction of the resolution. Perhaps the simplest thing to do is place a buy stop above or a sell-short stop below a price consolidation zone of a stock in a Squeeze. As mentioned above, though, you may encounter some headfakes. Another idea is to simply buy at or near the lower band. I'll sometimes do that for a stock which had a big post-earnings rally and has subsequently slipped into a squeeze while consolidating those gains.

Those type of stocks will be in strong, clear longer-term uptrends. If the stock approached the lower band and the lower band stays flat I'll consider buying near the lower band with a stop loss order not far below the lower band. I'd reverse all of that for shorts. These stocks may not be ready to be traded, as they are simply consolidating.