Bollinger squeeze breakout

Formula

Step 1: band width = upper band - lower band. Step 2: a squeeze is a width in the narrowest fifth of the last 60 candles, and below their middle value. Step 3: there was a squeeze on 1 of the 5 candles before this one. Step 4: this candle is the first to close above the upper band. Then the rule plans a Buy. A first close below the lower band plans a Sell. Step 5: entry = the next candle's open. Step 6: stop = the middle band, but kept between 0.5 x ATR and 1 x ATR from the entry. Step 7: R = entry - stop. Target = entry + 2R. If the next candle opens back past the middle band, the setup is skipped. Step 8: the trade ends at the target, the stop or the day's last close. If 1 candle reaches both, the stop counts. Only 1 trade runs at a time.

How it is read

Here is an example. ATR (average true range) is the usual size of 1 recent candle. Say ATR is 20 points. The middle band is 25,280, and the next candle opens at 25,310. The middle band is 30 points away, which is more than 1 ATR. So the stop is held at 1 ATR, which is 25,290. R is the gap between the entry and the stop, so R is 20 points. The target is 25,310 + 40 = 25,350. Here is how a trader can win with this rule. Each win is 2R and each loss is 1R. So you can be right on only 2 trades in 5 and still come out ahead. Take 5 trades. 3 hit the stop for -3R and 2 hit the target for +4R. The total is +1R. A win is more likely after a real squeeze, when the bands are clearly narrow. Wait for a close outside the band, not just a touch, and keep the stop where the rule put it. When a stop is hit, the stop did its job. The breakout did not hold, and the loss stayed small. High risk level here means a tight stop. A normal wiggle can reach it, so the stop is hit more often. Each loss is small in points. To try it, open Paper Trading and turn on Bollinger in Indicators. Look for narrow bands, then a close outside them. Write down the 3 prices before you place an order for 1 lot.