Volatility Squeeze

A volatility squeeze occurs when the price of an asset consolidates within a narrow range, leading to a significant contraction in volatility. This state is visually represented by Bollinger Bands tightening around the price action.

Traders view a squeeze as a period of calm before a potential storm, as it indicates that the market is preparing for a significant move. When the price finally breaks out of this narrow range, it often triggers a high-volume trend, either upward or downward.

The volatility squeeze is a classic setup for breakout traders who aim to capture the rapid price movement that follows the period of consolidation. By monitoring the contraction of bands, traders can anticipate the breakout and position themselves to capitalize on the resulting expansion in volatility and price action.