Low volatility does not choose a direction
A squeeze describes comparatively narrow bands under a specified measurement. It does not by itself predict whether the next move is up, down, or simply more sideways trading. This daily long-side example therefore separates the prior contraction from the current expansion and price breakout. A narrow band alone cannot satisfy the full setup.
The strategy combines Bollinger Band Width, a preceding-20-session high, and a completed daily volume ratio. All three require explicit reference windows. The exercise accepts supplied widths and prices, then checks their relationships. It does not fetch a market history or calculate a hidden probability of a breakout succeeding.
Define width and its historical percentile
Band width is (upper band minus lower band) divided by a positive middle band, multiplied by 100. A $55 upper band, $49 lower band, and $52 middle produce approximately 11.54%. This normalized quantity differs from ATR and from the raw dollar distance between the bands. Mixing these units can make a threshold meaningless.
For the squeeze condition, the previous completed width must be at or below the 20th percentile of 60 earlier widths. Those 60 observations precede the previous width; they exclude both the previous and current tested values. The exercise uses the nearest-rank convention. For 60 sorted observations, the 20th percentile is the 12th value because ceiling(0.20 × 60) equals 12.
Why percentile conventions matter
Software may use interpolation instead of nearest rank. Two systems can therefore disagree near a threshold while both report a 20th percentile. State the method in the rule version. A percentile calculated from a history including the current expansion also uses a different reference sample from the one specified here.
With historical widths from 2.00 through 4.95 in increments of 0.05, the 12th sorted value is 2.55. A previous width of 2.20 qualifies as a squeeze under that sample. A previous width of 2.60 does not. The values are fictional and selected to make the ranking transparent, not to illustrate a validated market distribution.
Expansion and price confirmation
Current width must exceed previous width. That establishes expansion, but not its direction. The current close must also exceed the highest high of the preceding 20 sessions, while the prior close was not above its own preceding-20 high. The reference channel excludes each tested bar. Including the current high would make a strict close-above-high comparison structurally impossible for ordinary OHLC data.
The final numeric filter is volume at least 1.5 times its preceding-20-session mean. The current completed volume is excluded from that denominator. An expanding band and a price crossing on weak volume can therefore fail this example even if the chart appears dramatic. The result should identify the failed volume rule rather than simply describing the market as bullish.
Follow a complete contraction-to-expansion case
Assume the previous width is 2.20 versus the 2.55 historical threshold and current width expands to 2.80. Current close is $50 against a preceding-20 high of $49.80. Previous close was $49.40 against its own $49.80 channel. Volume ratio is 1.6. The supplied numeric sequence meets the defined contraction, expansion, crossing, and volume conditions.
With a hypothetical next-session entry at $50 and ATR14 at $1, the stop reference is $48.50 and the fixed two-distance target is $53. The price distance ratio is two before friction. The quantity calculation reduces the share count according to the modeled loss budget and long cash cap; it does not make the squeeze more predictive.
Change current width to 2.10. Price can still break out, but the required expansion fails. Change the preceding-20 high to $50.20: the directional crossing fails instead. Change the previous width to 2.70: the prior contraction fails. The exercise intentionally keeps these explanations separate so that one attractive observation does not stand in for the entire rule set.
Handle the failed move consistently
The closing failure condition is a daily close below the breakout line recorded at entry planning. The protective instruction takes priority, followed by the target and ten-session time exit. A later channel can rise, but this version does not retroactively replace the original failure line with a more convenient value.
Volatility expansion can be adverse and abrupt. A gap can jump both the intended entry and stop assumptions. An event can widen spreads while making the chart look more decisive. The required data, liquidity, and event reviews remain outside the arithmetic relationships and are represented explicitly in the tool.
Evaluate parameter choices honestly
The 20/2 bands, 60-width history, 20th percentile, and 1.5 volume ratio define one illustrative experiment. They are not advertised as optimal. Trying many variants and presenting only the best historical curve requires a different evidentiary standard from demonstrating this worksheet. Preserve the original version and all attempted changes before comparing results.
Use the exercise to understand the sequence and denominator choices first. A clean rule match is a reproducibility result. Profitability would require separate evidence about the complete eligible sample, executions, costs, and performance beyond the observations used to design the rule.
Versioned rule card
EDU-2026-11-v1. These illustrative settings define one educational experiment. They are not optimized parameters, a verified edge, or personal trade instructions.
Entry condition 1: Calculate band width as (upper minus lower) divided by positive middle band times 100.
Entry condition 2: Previous completed band width at or below the 20th percentile of the 60 band widths preceding that previous observation.
Entry condition 3: Current band width above previous band width.
Entry condition 4: Current close above the highest high of the 20 sessions preceding the current session; prior close not above its own preceding-20 high.
Entry condition 5: Completed volume ratio at least 1.5 against preceding 20 sessions; model next-session entry.
Exit rule 1: Modeled stop equals entry minus 1.5 ATR14.
Exit rule 2: Target equals entry plus two times planned entry-to-stop distance.
Exit rule 3: Protective exit first; otherwise target, then daily close below recorded breakout line, then ten-session time exit.
From a rule match to an executable paper plan
A strategy condition and an executable order are different objects. First record the completed observation that satisfied the condition. Then write the earliest moment at which that observation could have been known. A rule requiring the final daily close cannot normally be evaluated early enough to assume a fill at that same closing price. The next session may open above, below, or through the proposed reference. Intraday examples have the same sequencing issue at the boundary between a completed five-minute bar and the next bar. The hypothetical entry used in the exercise is a separate input for exactly this reason.
Write the order instruction before calculating a result. A market instruction emphasizes execution while allowing price uncertainty. A limit instruction imposes a price boundary while accepting nonexecution or partial execution. A stop reference is an activation condition, not an insurance contract. A stop-limit instruction can activate without filling. If a gap skips the reference, the chart does not prove that the position could have been closed at that reference. A realistic paper record therefore preserves the planned price, actual assumed fill, quantity filled, remaining quantity, and the reason for any cancellation. These distinctions are explained further in the site's Trading Basics lessons.
Quantity, costs, and a worked execution budget
For a hypothetical long position, planned price risk per share is entry minus stop. For a hypothetical short, it is stop minus entry. Both expressions must be strictly positive. Suppose a long entry is $50, a stop reference is $48.50, the total adverse-friction assumption is $0.05 per share across the round trip, and fixed round-trip charges are $2. With a modeled $100 loss budget, the arithmetic quantity is floor((100 − 2) / (1.50 + 0.05)), or 63 shares. This models $99.65 of loss at the assumed exit, rather than proving an actual maximum loss.
A separate cash check matters. If only $2,000 is allocated to the share purchase and charges, floor((2000 − 2) / 50) permits 39 shares in this simplified cash calculation. The smaller quantity governs the long example. With those 39 shares, a hypothetical $53 target and the same friction produce 39 × (3 − 0.05) − 2 = $113.05 of modeled net gain. The modeled stop loss is 39 × 1.55 + 2 = $62.45. Their ratio is approximately 1.81. That ratio describes two assumed outcomes; it says nothing about how likely either outcome is.
The exercise uses whole shares and a single fixed-friction assumption to keep the arithmetic visible. Borrow fees, financing, taxes, changing spreads, partial fills, market impact, and a stop skipped by a gap require additional treatment. In particular, the long cash-cap input is not a margin or buying-power model for a short position. Review aggregate exposure and correlated positions using the site's Risk Management learning path before treating any individual-position calculation as a complete portfolio plan.
Exit priority and ambiguous bars
The listed exits describe distinct reasons for leaving. The protective reference is checked first under the illustrative plan; a target or closing-bar condition is considered afterward. However, a daily or five-minute OHLC bar may contain both the stop and target without revealing which was reached first. Do not choose the favorable sequence simply because it improves a result. Use finer trustworthy observations, flag the sequence as unresolved, or apply a disclosed conservative convention consistently. A closing-bar exit cannot be assumed to have prevented an earlier intrabar stop touch.
If a target is fixed at confirmation, preserve that original value. If a strategy explicitly updates a trailing reference, record the update time and make the new value effective only afterward. A revised stop should never be applied retroactively to the bar that generated it. A time exit also needs an execution assumption: submitting an order at a chosen time does not establish that the observed chart price was the actual available fill. Record the difference instead of silently replacing the plan with hindsight.
Review evidence without manufacturing a track record
Start a paper test by freezing the rule version, instrument universe, session definition, time zone, data source, corporate-action treatment, and cost assumptions. Include every eligible observation, including failed conditions and unfilled orders. A collection of attractive screenshots is not a complete sample. Missing data should remain missing rather than being converted into a passing condition. The examples here illustrate mechanics and arithmetic; none of the chart paths establishes a historical win rate or expected future return.
If testing historical data later, separate development observations from a subsequent evaluation period. Record every parameter combination tried so that an attractive result is not presented as an independent discovery after many hidden trials. Include delisted instruments when the universe requires them, avoid using future information to select past leaders, and check how split and dividend adjustments affect price and volume comparisons. These details can change which bars qualify even when the indicator names remain identical. The Technical Analysis lessons provide related material on indicators, reference windows, and disciplined testing.
Using the dedicated practice exercise
Open the exercise linked to this strategy and first review the fictional defaults. Change one assumption at a time. The tool evaluates the supplied numbers and explicitly entered review states; it does not retrieve an independent chart or verify a person's judgment. “Meets entered example conditions” means only that the entered conditions satisfy this particular rule version. “Unresolved” identifies required information that has not been confirmed. A failed condition remains a failed condition even when the hypothetical target result is attractive.
After reviewing the result, preserve the inputs and write which observation changed the conclusion. Repeat with a near-boundary example, a missing requirement, and an adverse execution assumption. Reset restores the fictional example. The worksheet does not send orders, connect a broker, or save a trading account. A repeatable process includes decisions to wait, reject a setup, or investigate an unknown; it is not a requirement to produce a trade every session. The Trading Psychology lessons explain how to review those decisions independently of profit and loss.
Indicator background
For indicator definitions, see Fidelity’s Technical Indicator Guide. The particular thresholds and combinations on this page are our illustrative rule version, not a strategy endorsed or validated by that reference.