Do you know about Bollinger Band Squeeze? Yes thats my favourite Bollinger Bands trading strategy and I use it in my charting software Amibroker. Before we go more into the strategy lets take a look on what is Bollinger Bands?
The difference between the top and bottom bollinger bands (BB) is called the BB range. Sometimes the price is trending and the bollinger bands are expanding and sometimes the bollinger bands are contracted and the price is in narrow range. At times of contracted bollinger bands there is very low bollinger band range. This is also called a bollinger band squeeze. Once the squeeze occurs price tries to break out above or below the tight range and this is a trading opportunity catching the breakout.
Bollinger Bands Trading Strategy:
1) Look for a Bollinger Band squeeze.
2) Note the price range during the squeeze.
3) Watch for a breakout OR breakdown above of below the bands.
4) Trade the breakout.
5) Keep a stop loss using the Parabolic SAR.
6) Keep at least a 1:1 OR 1:1.5 target.
For you I am presenting you with a Bollinger Band Squeeze Amibroker AFL. You can unlock the AFL using any of the share buttons below.
A Practical Example of Bollinger Band Squeeze:
Watch yesterday’s end of day chart of GRASIM. Price was moving inside a squeeze (yellow colour) for some time and yesterday it has broken out. Trend players can trade long with stop below the Parabolic SAR value of 1048. Check the image below.
Counter Trend Bollinger Bands Trading Strategy:
This is also called a Head Fake. Watch the example below to see end of day chart of BOSCHLTD below.
1) Watch for a BB squeeze.
2) Wait for a breakout above OR below.
3) Just after the breakout watch for a reversal bar.
4) Enter counter trend trade.
5) Keep SL above last high.
Indrajit is a professional blogger and trading system developer. Amibroker expert, Wordpress expert, SEO expert and stock market analyst.Trading since 2002, he has started the journey of StockManiacs.net on 2008. He follows Indian and world stock markets closely.