Bollinger Band Strategy: Squeeze and Fade

Overview

Bollinger Bands adapt to volatility. The bands contract during quiet periods (the squeeze) and expand during explosive moves. This strategy uses both modes: fade the bands in ranges, and trade the breakout after a squeeze releases.

Setup

• Instruments: forex pairs, stocks, crypto
• Timeframe: 1-hour or daily
• Indicators: Bollinger Bands (20, 2), BandWidth, RSI(14)
• Two regimes: range-fade (ADX < 20) and squeeze-breakout (BandWidth at 6-month low)

Entry rules — Fade mode

1. ADX(14) below 20 confirms a range
2. Price pierces the upper band and RSI above 70 → short
3. Price pierces the lower band and RSI below 30 → long
4. Wait for a candle to close back inside the band before entering

Entry rules — Squeeze breakout mode

1. BandWidth is at a 6-month low (compressed volatility)
2. Wait for a daily close outside the band in the breakout direction
3. Enter on the next bar's open
4. Confirm with rising volume

Stop loss rules

• Fade mode: 1 × ATR(14) beyond the band extreme
• Squeeze mode: back inside the band on a closing basis
• Maximum risk: 1% of account per trade

Take profit rules

• Fade mode: target the 20 SMA (middle band)
• Squeeze mode: trail under the 20 SMA, exit on the opposite band touch
• RR target: 1.5:1 (fade) or 3:1 (breakout)

Risk management

Parameter	Fade mode	Breakout mode
Risk per trade	1%	1%
RR target	1.5:1	3:1
Stop placement	Beyond band	Back inside band
Exit trigger	Middle band	Trailing 20 SMA

Use the position size calculator and the risk-reward calculator for every entry.

Common mistakes

• Fading in a strong trend — price walks the band and never reverts
• Trading the squeeze before it actually breaks
• Mixing the two modes — pick the regime first, then choose the playbook

Key principle

The squeeze is a coiled spring; the fade is a rubber band. Know which environment you're in before pulling the trigger. The BandWidth indicator is the single most important confirmation.