Let’s cover one of those indicators that help us determine if we are in a trending or consolidating market, the Bollinger Band Squeeze.
I’ll recap the components of The Squeeze, describe the rationale behind the indicator, and present an approach you can use to develop a customized Squeeze trading indicator.
Choppy Markets & The Squeeze
Whenever market volatility decreases, we see the Bollinger Bands tighten while the Keltner Channel remains relatively constant. As volatility continues to decrease the bands will eventually move inside the channel lines.
This means that, using the typical default values, 95% of the closing prices fall within 1.5 ATR’s of the moving average, and that is what constitutes a squeeze.
– See more at: http://www.netpicks.com/squeeze-out-the-chop/