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Glossary · Indicators

Squeeze (Bollinger squeeze)

A period of unusually low volatility when Bollinger Bands narrow sharply, often followed by a larger move in a direction it doesn't predict.

By Sky Trade editorial teamUpdated

A squeeze occurs when Bollinger Bands contract to their narrowest width in a while. It reflects compressed volatility: candles get small, price drifts sideways and the market looks asleep. Because volatility tends to cycle between quiet and active phases, a squeeze is often followed by expansion.

The missing piece is direction. A squeeze says a bigger move may be coming, not which way it will go. Traders who buy a squeeze because it “looks ready to pop” are guessing. The usual approach is to wait for price to break out of the squeeze and then decide, accepting that the first break is sometimes a false breakout opposite to the real move.

Practical details:

  • Narrow is relative: compare band width with its own history, for example the lowest width of the last 100 candles.
  • Some traders define a squeeze as Bollinger Bands moving inside Keltner Channels; Sky Trade offers both indicators.
  • Squeezes often form before scheduled news and resolve at the release.

For short expiries, the uncertain timing of the expansion is a real risk. See Bollinger Bands explained.

Example

GBP/USD band width on M15 shrinks to 9 pips, its lowest of the week. Two hours later a candle closes above the upper band, and within the next hour the bands widen to 30 pips.

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