Forex Bollinger Band Squeeze

Entry Logic

• Entry triggers when the Bollinger Bands (20, 2) squeeze to their narrowest point in 100 periods, and then a candle closes outside the bands.
• Confirmation requires the breakout candle to have a large body and close near its high/low.
• Timeframe is the 4-hour chart.
• Location is a transition from a low-volatility to a high-volatility environment.
• Market condition is a breakout from a consolidation phase.

Exit Logic

• Profit target is a 2:1 risk-reward ratio.
• No scaling out.
• Trailing stop is the middle Bollinger Band (20-period simple moving average).
• Exit on signal failure if the price closes back inside the Bollinger Bands.
• Exit on an opposite signal from a failed breakout and a reversal candle.
• No time expiration.
• Exit on momentum loss if the price stalls and the Bollinger Bands start to contract.

Stop Loss Structure

• Hard stop is placed on the opposite side of the Bollinger Band squeeze.
• No soft stop is used.
• Maximum dollar loss is 2% of account equity.
• Maximum percent loss is 2% of account equity.
• Structural stop is placed at the midpoint of the squeeze.

Risk Management Framework

• Risk per trade is 1% of the account.
• Maximum daily loss limit is not applicable for this strategy.
• Maximum weekly loss limit is not applicable.
• Maximum drawdown allowed is 20%.
• Risk-reward ratio requirement is a minimum of 1:2.

Position Sizing Model

• Sizing is based on a fixed fractional model (1% of account per trade).
• No volatility adjustment is used.
• Conviction sizing is not used.
• No scaling in.
• No scaling out.

Trade Filtering

• Avoid trading when the Bollinger Bands are wide and the market is already volatile.
• Requires a clear squeeze of the Bollinger Bands.
• Instrument can be any major forex pair.
• Can be traded at any time.
• Avoid trading before major news events.

Context Framework

• Trend direction is determined by the direction of the breakout.
• The focus is on the expansion of volatility.
• The middle Bollinger Band can be used to gauge the short-term trend.
• Location is a breakout from a low-volatility phase.
• Higher timeframe (daily) can be used to identify the overall market condition.

Trade Management Rules

• This is a breakout strategy.
• Let the trailing stop manage the trade.
• Do not add to the position.
• Be prepared for a fast-moving market after the breakout.

Time Rules

• This strategy can be used on any timeframe, but the 4-hour chart is a good starting point.
• The optimal time to trade is when a clear squeeze has formed.
• No session-specific notes.

Setup Classification

• A+ setup: Breakout from a very tight Bollinger Band squeeze with high volume.
• A setup: Breakout from a moderate squeeze.
• B setup: Breakout with low volume.
• C setup: Trading against the breakout.

Market Selection Criteria

• Instrument can be any major forex pair.
• Requires a period of low volatility followed by an expansion in volatility.
• Volatility is the key to this strategy.

Statistical Edge Metrics

• Expected win rate is 40%.
• Average win is 3R.
• Average loss is 1R.
• Profit factor is 1.6.
• Expectancy per trade is +0.4R.

Failure Conditions

• Strategy fails when the breakout is a false signal (a "head fake").
• Avoid trading when the market is in a long-term, low-volatility regime.

Psychological Rules

• Be patient and wait for the squeeze to develop.
• Do not be afraid to enter a trade when the market is quiet.

Advanced Components

• The Bollinger Band squeeze is the key advanced component.
• No other filters are used.
• No multi-timeframe alignment is needed.

Location

• Strongest after a period of prolonged consolidation.
• Weakest in a market that is already trending strongly.
• The transition from low to high volatility is the key.