Trading Volatility Squeezes
Trading volatility squeezes can be exceedingly profitable because of the nature of the trade. A period of low volatility, where prices are in a narrow range, will inevitably lead to a volatility expansion. Periods of low volatility are identified by extremely narrow Bollinger Band width. Volatility expansions tend to be directional in nature – that is, if the trend is broken upwards (stock price is now above the upper Bollinger Band) the stock will continue upwards (breakout) and if the narrow range is broken downwards (stock price is below the lower bollinger band) the stock will continue downwards (breakdown). By delaying our trade until the squeeze breaks either upward or downward, we enter the trade right at the infancy of the volatility expansion and the trade begins working immediately. The Volatility Squeeze is a major focus of the Stock Market Mentor.