What is Bollinger Breakout Strategy?
This is a strategy that takes advantage of the phenomenon of volatility exploding and moving strongly in one direction after the Bollinger Band squeeze (narrowing).
Why does an explosion occur after a squeeze?
In areas of low volatility (squeeze), positions with no direction are accumulated. As soon as the direction is decided, the liquidation of positions in both directions occurs at once, maximizing the directionality.
How to check the squeeze
Bollinger band width = upper band - lower band
Squeeze criteria: Bollinger band width close to 6-month low
Practical criteria: A section where the band is noticeably narrower to the eye.
You can check it numerically by additionally displaying the Bollinger Band Width (BBW, Bandwidth) indicator.
How to predict breakout direction
Squeezing alone does not provide direction. Get direction hints with:
Hint 1: Direction of previous trend
A breakout in the direction of the pre-squeeze trend is likely.
Hint 2: Trading volume patterns
If volume becomes biased in one direction during a squeeze:
- More trading volume on rising bars → Possibility of upward breakout
- More trading volume on falling bars → Possibility of downward breakout
Hint 3: MACD direction
If MACD is above the 0 line in a squeeze zone, there is a high possibility of an upward breakout.
Entry method
Method A: Immediate entry after breakout
Entry conditions:
- Break through the upper/lower Bollinger Band as the closing price
- More than twice the average trading volume of the relevant bar
Entry: Breakout bar close
Stop Loss: Opposite the Bollinger Band center line (20-day SMA)
Advantages: Early entry → First mover benefits
Disadvantage: Loss in case of fake breakout
Method B: Revert and re-enter (recommended)
Entry conditions:
- After breaking through the top, adjust to the center line (revert)
- Check the rebound from the center line
Entry: Confirmation of center line rebound Bar closing price
Stop Loss: Below the center line (for longs)
Advantages: filtering out fake breakthroughs, favorable prices
Disadvantage: Boarding may fail in case of strong breakthrough
Fake breakout filtering
| signal | A real breakthrough | fake breakout |
|---|---|---|
| Trading volume | Explosive increase | Below Average |
| closing price | Out of Band | in band |
| next rod | direction continuation | Instant reversal |
| MACD | same direction | Opposite direction |
Related guides
- Complete explanation of Bollinger Bands →
- MACD and Bollinger combination →
- Measuring volatility with ATR →
- Liquidation price calculator →