Volatility Squeeze Breakouts

The most explosive breakouts

A volatility squeeze is when volatility builds up as price actual consolidates into a tighter and tighter range. This indicates that there will be a explosive price movement either to the upside or downside. The tighter the volatility, the more violent and explosive the move will be. These "Squeeze" zones are identified on our HTF & LTF indicators via a yellow shading that will appear over the price action candles. Below is an example of a squeeze that started. This should be your first warning to pay attention. Next we will introduce the "Breakout Arrows" that appear after a squeeze has started.

Signal	Bullish or Bearish	Definition
Yellow Shading	Neutral	Violent move incoming/Pay attention

Breakout Arrows will appear in the next step after a squeeze shading has started to let you know what breakout direction is anticipated. There are two types of directional arrows that will appear after a squeeze shading:

1. Smaller colored directional arrows identifying potential breakouts (Green for breakout to upside, Red for downward breakout). These will have a lower probability than the larger arrows of the breakout starting a new trend. They are for the more riskier trader who wants to try and get into an earlier position.

2. Larger colored directional arrows identifying confirmed breakouts. (Green for breakout to upside, Red for downward breakout). These will have a higher probability than the smaller arrows of the breakout starting a new trend. They are for more conservative trader searching for higher probability setups.

Signal	Bullish or Bearish	Definition
Small Green Arrows	Bullish	Potential Bullish Breakout
Large Green Arrows	Bullish	Confirmed Bullish Breakout
Small Red Arrows	Bearish	Potential Bearish Breakout
Large Red Arrows	Bearish	Confirmed Bearish Breakout

Below picture is an extension of the first picture above to show the progression of the volatility breakout setup. This squeeze was started in 2019 after Bitcoin had crashed to $3k & consolidated for a long while. This squeeze breakout ended up starting the new bull market and identified the setup from the very low/start of the bull market run. This is why these volatility squeezes are one of the most powerful setups in trading. They place you into stage 2 uptrends. The most ideal entries to enter potential long positions.

Quick Tip: Note that green or red Momentum bars within a shaded squeeze can give confluence to the possible direction of the breakout. It should help you anticipate the move better.

Remember to always set a stop loss on these trades to define a safe & respectable risk vs reward on your trades. Volatility zones have increased levels of volatility.

Volatility Squeeze Fakeout

One of our most favorite & profitable ways to use the HTF/LTF Suites is to identify Squeeze Fakeouts. This is when we have the progression of a shaded squeeze, a breakout arrow, but then suddenly a Reversal Bar prints from the Alpha Trend. This is signaling a significant reversal. Remember these are high volatility zones so the reversal here will be much more significant and even more explosive than the normal squeeze breakout. It also is a way to give you a heads up that you might want to take profit and exit your squeeze breakout trade if you were in one before the reversal bar printed. Note that you will still want to use the confirmation rules outlined in the Alpha Trend section of this Alpha Doc.

Below are some examples of Squeeze Fakeout trades on Bitcoin:

Below is an example of the opposite side Squeeze Fakeout - a Bullish Squeeze Fakeout signaled by a Bullish Reversal Bar from the Alpha Trend after a bearish Squeeze Breakout.