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Squeeze ReleaseBollinger bands inside the Keltner channel

Evidence: ModerateIntermediateVolatility · Band compression

Two ways of measuring the same width disagree in a useful way. Bollinger bands are built from standard deviation, which collapses fast when price goes quiet. The Keltner channel is built from average true range, which collapses slowly.

So when the Bollinger bands slip entirely inside the Keltner channel, deviation has fallen further than range has — the market is not just quiet, it is quiet in a way that is unusual for its own recent range. That is the squeeze, and it is a condition you can test for rather than see.

The evidence here is for volatility clustering — quiet periods follow quiet periods and loud follow loud. That is well established. Which direction the expansion goes is a separate question, and this page is honest about how much less the evidence says about it.

Category
Volatility · Band compression
Timeframe
H1 or H4 · the same rule reads on both
Suitable pairs
EURUSD · USDJPY · XAUUSD · US30
Session
Any — but the release is far more likely across a session open
Indicators / tools
Bollinger(20, 2) · Keltner EMA(20) ± 1.5 × ATR(10)

Valid setup

VL-02 · SQUEEZE RELEASE — VALID SETUP AUDUSD · H1 · the Bollinger bands sit inside the Keltner channel, then push back out LONG 0.65487 0.65571 0.65655 0.65738 0.65822 0.65906 0.65989 2R 1R Keltner — EMA(20) ± 1.5 × ATR(10) Bollinger(20, 2) TP1 = 1R, then trail the far band ENTRY = the close that ends the squeeze STOP = the Keltner centre line 1 2 3 4 0.65816 0.65756 0.65696 ① Bollinger slips inside Keltner — the squeeze is on ② Six bars of it, so it is a state and not a blip ③ Still no direction — that comes from the release bar ④ Bands push back outside — enter at that close ⑤ Stop on the centre line ⑥ Trail the far band, no fixed TP2

Exact rules

Entry

  • Squeeze on: the Bollinger upper band is below the Keltner upper band and the Bollinger lower is above the Keltner lower. Both, at the same close.
  • Require at least six consecutive bars in that state. A single bar is noise.
  • Trigger: the squeeze turns off — the Bollinger bands push back outside — and the bar that turns it off closes in the direction you take.
  • Enter at that close.

Stop loss

  • The Keltner centre line, the EMA(20), at the entry bar.
  • If that is closer than 0.8 × ATR(10), use 0.8 × ATR(10) instead. A stop inside the noise is not a stop.
  • Risk 0.5%–1%.

Take profit / exit

  • TP1 at 1R.
  • TP2: trail on the opposite Keltner band. The squeeze says the move will be large, not how large — a fixed target throws away the part of the claim that is actually supported.
  • Exit everything if a new squeeze forms. The expansion is over.

Build Squeeze Release

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More from Volatility

Volatility Contraction Breakoutthe range narrows, then gives wayATR Expansion Continuationjoin the bar that broke the quietVolatility-Targeted Trendthe same trade, sized by how loud the market is

Trading carries risk and most retail accounts lose money. Nothing on this page is financial advice or a recommendation to trade. The chart is an illustration of the rules on constructed candles — it is not a record of a trade and not a backtest.