Bollinger Band Squeeze & Breakout

Setup & Indicator

  • Bollinger Bands: Period 20, StdDev 2
  • Timeframe: M30–H1 for more frequent squeezes
  • Volume filter: Low ATR² value or VIX-like index

Entry

  1. Identify a squeeze: Bands contract tightly (bandwidth < 0.5 × average).
  2. Breakout: Close outside the upper band → long, or outside the lower band → short.

Exit & Trailing

  • Stop-loss: At the middle band (MA20) or a few pips back into the band.
  • Trailing: Fixed distance (e.g., 20–30 pips) or dynamic adjustment along the upper/lower band line.

Risk Management

  • Open a position only when volume (MT5 volume histogram) is rising.
  • No trading during high-impact news (news filter in the EA).
Example chart: Bollinger Band squeeze & breakout
Example chart for the Bollinger Band squeeze & breakout setup
  • Upper panel (price with Bollinger Bands):
    • Yellow line: Close price
    • Dotted lines: Upper and lower bands (BB20,2)
    • Red line: Middle band value (MA20)
    • ▲ Long breakout: Close after a squeeze outside the upper band
    • ▼ Short breakout: Close after a squeeze outside the lower band
  • Lower panel (Bandwidth):
    • Yellow line: Bandwidth = (Upper − Lower band) / MA20
    • Dashed line: Squeeze threshold = 0.5 × average bandwidth

Explanation

  1. Squeeze phase: When bandwidth drops below the threshold, it indicates low volatility.
  2. Breakout: After a squeeze, a close outside the bands triggers a long (upper) or short (lower) trade.
  3. Volume filter & news: In practice, also ensure volume (e.g., the MT5 volume histogram) is rising and no high-impact news are scheduled before entering.
  4. Stop-loss & trailing: Stop near the middle band or a few pips back; trailing stop fixed (20–30 pips) or dynamic along the band.

This chart provides a visual template for how squeeze phases and subsequent breakouts appear in the M30–H1 context.

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