How the bands are built.
- Middle band: a 20-period simple moving average.
- Upper band: the middle band plus two standard deviations.
- Lower band: the middle band minus two standard deviations.
- Wide bands mean high volatility; narrow bands mean the market is quiet.
Setup 1: the squeeze breakout.
When the bands contract to their narrowest in months, wait for a candle to close outside them. Enter in the breakout direction with the stop on the other side of the middle band.
The squeeze tells you a move is coming, not which way. Let price decide, and accept that some breakouts fail.
Setup 2: mean reversion in a range.
When the bands are flat and price has been ranging, a touch of the outer band with a rejection candle can be faded back toward the middle band. This only works while the range holds — a squeeze breakout ends it.
Keeping it inside the rules.
Volatility expansion is exactly when daily drawdown gets hit. Size from the stop distance, which is wider when the bands are wide, so the cash risk stays the same whatever the volatility. 0.5–1% per trade keeps a $50,000 evaluation well clear of its 3% daily floor.