Volatility Squeeze

A volatility squeeze is a market that has stopped travelling. Ranges overlap, standard deviation falls, ATR falls, and bands pinch. The idea, common to Bollinger, Keltner comparisons, and many breakout systems, is that compression is unsustainable and the next directional move will be larger than the compression bars. The idea does not say when, and it does not say which way. Squeezes resolve into trends and they also resolve into another, slightly wider, range.

Traders mark a squeeze when BandWidth hits a multi-month low, when Bollinger Bands sit inside Keltner Channels, or when ATR is in a low percentile for that market. They then wait for a close outside the compressed range, a Donchian break, or a momentum histogram flip. The entry is the resolution, not the pinch. Stops usually go back inside the squeeze, because a return into the coil invalidates the break.

A bullish resolution is a close through the top of the coil, with the middle band turning up, and preferably with volume or a higher-timeframe trend in the same direction. The first strong close is not always the one that holds. A retest of the coil's top is part of the pattern, not a failure, if it holds.

A bearish resolution is a close through the bottom of the coil. Compression before a markdown is common, and buying the squeeze because compression "feels" bullish is how traders take the wrong side of it. Direction comes from the break and from the larger trend, not from the pinch.

Entering during the pinch because it looks ready. Ready can last. Also assuming every squeeze produces a trend equal to the last one. Some coils break by a little and stall, which is why the stop belongs back inside the range.

A squeeze describes the past window. A scheduled event, earnings or a policy decision, can blow the coil in a gap that no intraday trigger manages. Know the calendar. And low volatility in a market with no participants can be absence, not a coiled spring.