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Breakout
After the Bollinger bands narrow, do you trade with the breakout or back toward the middle?
Bollinger squeeze breakout
What it bets
After bandwidth falls very low, the next expansion will pick a direction. The side of the breakout decides which way.
How the rule is written
John Bollinger's bandwidth is how wide the upper and lower bands are relative to the middle band. A squeeze means bandwidth is in a low percentile of its own history. After that, a close outside the upper band leans long, and a close outside the lower band leans short. Low bandwidth only says the bands are contracting. It does not say price will rise.
When it fails
A squeeze can last a long time. The first close outside a band often comes straight back to the middle band.
Do not confuse it with
Bollinger mean reversion bets that a touch of the band comes back. A squeeze breakout bets that price leaves once the contraction ends. The two use the same bands and point opposite ways. They cannot be written as one signal.