The squeeze made by the Bollinger Bands as well as the Keltner channel indicators is a common trading signal. The squeeze implies a fine balance between buyers and sellers marked by a period of low volatility. When price breaks out of the squeeze, a significant move often takes place in the direction of the trend.
Bollinger Bands and Keltner Channel Squeeze
In the above example, there were two squeezes generated by the Bollinger Bands before trending higher. Note that the squeeze can also cause the price to drop dramatically which is dependent on the direction of the trend.
Squeezes can last days, weeks, or months and therefore appear on a variety of different timescales. Something to keep in mind about this signal is that the longer the squeeze lasts for, the larger the price move will be.
You can think of a squeeze as a spring coiling its momentum before unleashing before impact. As a squeeze reflects a lack of buying or selling pressure, it’s therefore easy for the price range to break out of the lower or upper bands as part of a breakout as the price lacks clear support and resistance areas.
Squeezes appear for both indicators, but Bollinger Bands will tend to give you less, but more reliable signals that Keltner channels. The reason being is that Bollinger Bands are based on standard deviations of price while Keltner channels are based on true ranges.