Bollinger Breakout:
Trading the Volatility Blast
Volatility is cyclical. When the market falls silent, it's usually preparing to scream. Learn to catch the explosion.
The Anatomy of Volatility
Bollinger Bands are dynamic. Unlike static support lines, they breathe with the market, measuring the standard deviation of price action.
Bands widen. The market is accelerating and a trend is forming.
Bands contract. Volatility is at a low and a breakout is imminent.
Executing the Breakout
Don't just trade the "touch." You are looking for a penetration and a close.
The Bullish Entry
- 1 Identify the Squeeze: Bands are narrow and horizontal.
- 2 The Trigger: A strong green candle closes ABOVE the Upper Band.
- 3 Confirmation: Observe a spike in Volume as capital enters the move.
The Bearish Entry
- 1 Wait for the Squeeze: Volatility hits a multi-day low.
- 2 The Trigger: A strong red candle closes BELOW the Lower Band.
- 3 Exit Strategy: Use the Middle Band (20 SMA) as a trailing stop.
Avoid the "Head Fake"
The biggest weakness is the false breakout—when price pokes outside a band and immediately reverses.
The Middle Band Stop
"Once a breakout starts, the Middle Band (20 SMA) becomes your floor. If the price closes back inside the middle band, the momentum has likely died."
Breakout vs. Mean Reversion
Choose your weapon based on the market regime.
| Feature | Breakout | Mean Reversion |
|---|---|---|
| Market Condition | Transitioning to Trend | Range-bound / Sideways |
| Price Action | Price exits the bands | Price rebounds from bands |
| Goal | Catch a massive new move | Catch a "snap-back" |
| Risk | False breakouts | "Falling knives" |