How the pattern unfolds
The setup
The Index trades in a tight box near a compression cap around 206. Daily ranges narrow. Volume is quiet.
What triggers it
Tight sessions repeat for a while. Then an expansion candle breaks decisively beyond the box on rising volume.
What it means — and does not
Compression followed by expansion is the structure. It is even-handed: the box can break either way. The pattern is about a change in volatility. It is not a guaranteed direction.
- Price / index level
- Volume
- Compression cap · 206
A tight range near 206 (days 1-10) resolves with an expansion candle and follow-through.
Show the underlying data
| Day | Price / index level | Volume |
|---|---|---|
| 1 | 200 | 1 |
| 2 | 204 | 0.9 |
| 3 | 202 | 0.8 |
| 4 | 205 | 0.8 |
| 5 | 203 | 0.7 |
| 6 | 204 | 0.7 |
| 7 | 205 | 0.8 |
| 8 | 204 | 0.7 |
| 9 | 205 | 0.8 |
| 10 | 206 | 0.9 |
| 11 | 207 | 1.4 |
| 12 | 212 | 2 |
| 13 | 218 | 2.2 |
| 14 | 225 | 1.9 |
| 15 | 232 | 1.7 |
What this does not establish
The is invalidated if price falls back inside the box after breaking the 206 cap. The far edge of the compression box is conventionally treated as the invalidation level. The conventional measured move adds the box height to the breakout point. That is a way of sizing the move, not a forecast. It says nothing about whether the move happens at all.
Confirmation checklist
4Has the daily range genuinely narrowed over several sessions?
Did the expansion candle close decisively beyond the box, with volume?
Is the breakout confirmed, or does it fall straight back inside (a failed break)?
Remember: compression does not pick a direction. This is not a signal.
Common mistakes reading it
2Assuming compression breaks in the direction of the prior trend. It can break either way.
Acting on the first poke out of the box before a decisive close.
Volatility compresses into a tight box for several sessions. What does the compression predict?
- An upward break, since compression resolves in the direction of the prior trend
- A larger move, without saying in which direction
- Nothing — it is noise
Show the answer
B. A larger move, without saying in which direction
Compression is a statement about volatility regime, not direction: the box can break either way, which is what makes the pattern symmetrical. Nor is it noise — a narrowing range is a real, measurable change in how much the instrument is moving.
Frequently asked
3Does range compression predict the breakout direction?
No. Compression is even-handed: the box can break either way. It describes a volatility squeeze, not a direction.
What confirms an expansion?
Educationally, a decisive close beyond the box on rising volume confirms it. A single poke that falls back inside does not.
Is this a trade setup?
No. It is an educational explanation of a volatility structure. It is not a recommendation.