Volatility Squeeze

Discussion in 'Trading' started by FaderTrader, Feb 17, 2006.

  1. I'm wondering who here uses volatility squeeze indicators to pick stocks. I've hired a consultant to design an indicator for me as I'm trying to get better at trading breakouts.

    Basically, it will create a list of stocks each day with Bollinger Bands that have widths of less than 6% of the 20-day SMA. Stocks will all be >$40/share and avg daily vol of >1million shares.

    Does the math work out in favor of volatility mean reversion or is it like so many other shorter-term trading strategies where the chances are about even?

    Thanks in advance.
  2. Volatility compression is a good tool if you know what to look for. Just asking here, but why would you hire anybody to do that? Excel is more than capable of doing the calculations. You`re paying for something you can do yourself in a day or two.
  3. He's creating it on TradeStation Radar Screen since I'm looking to fold this indicator into a breakout strategy and then backtest in on Trade Station to optimize entries and exits. Ideally, this would lead to a high-probablility basket trading strategy. And... I'm not very tech-savvy. Thanks for the feedback.
  4. Bollinger Bandwidth measures the distance from the mean from the mean (SMA) to the Bands. It is calculated as
    Bandwidth = (Bollinger Upper Band - Bollinger Lower Band) / Bollinger Middle Band

    You may find free stock filter based on the Bollinger Bandwidth indicator which allows to see stocks where volatility squeeze was noted at
    Bollinger Bandwidth Stock Filter
    This filter also allows to select price range and volume limit.