It would be hard to find a trader who has not heard about John Bollinger and his famous Bands. Most charting programs include Bollinger Bands. But even though these bands are some of the most helpful if applied correctly, they’re also among the least understood.

One good technique to get a handle on the way the bands function is to read the book “Bollinger on Bollinger Bands,” in which Bollinger himself explains the whys and wherefores of utilising the bands. According to Bollinger, there’s one pattern that raises more questions than any other about Bollinger bands. He calls it “the Squeeze.” As he places it, his bands “are driven by volatility, and the Squeeze is a pure reflection of that volatility”.

Our NinjaTrader indicator plots the Squeeze (or the width of the Bollinger Band) in points. It also plots the moving average of the squeeze. Moving averages that can be used include – SMA, EMA, HMA, TMA, TEMA, WMA.

The squeeze relies on the premise that stocks fluctuate between periods of high volatility, followed by low volatility. Equities that are at six-month low levels of volatility, as demonstrated by the narrow distance between Bollinger Bands, generally demonstrate explosive breakouts. By using non-collinear indicators, an investor or trader can determine in which direction the stock is most likely to move in the ensuing breakout. With a little practice using your favorite charting program, you should find the squeeze a welcome addition to your bag of trading tricks.