hey my friend today we're going to talk about the bollinger bands
width indicator and this is an objective way to find bollinger band squeezes and um
there's other ways to do it as well but this is really a classic way so
what i have here is i'm using thinkorswim but this indicator is on a lot of charting platforms so
we've got um by the way people always ask me what settings i'm using so i'll just show you
here real quick price on the close standard length of 20 standard deviations negative 2 positive 2
all right and that's what we've got there and then the bollinger band width indicator here what that
is is a mathematical way of determining when you have a squeeze so squeeze is defined here as when
this line right here the blue line in fact i'll pull that up too so you can see how that's edited
so we want to make sure we match this with our bollinger bands okay so 20 negative two plus two
and then you can adjust these if you want to but bulge length squeeze length got them set at 150
this is the default in thinkorswim all right and then bandwidth that's your cyan line here
okay and then the bulge and then the squeeze right and those are both the same color let's let's make
the squeeze a different color just so it stands out for you okay we'll make it red okay so you can
see the red one down here that's where it's the squeeze when the bollinger band width indicator
comes down and touches that lower one then that's saying all right we have a squeeze on so
one of the nice things about that is that it is an objective way to identify squeezes rather than
just eyeballing it and being subjective about it all right so very good now but that's not all
okay so over here on the hard right edge of the screen and this was a trade i was considering
taking i did not take it and i'm going to show you why and how you can stay out of bad
bone jam squeezes if you've traded bone jam squeezes before you know that sometimes
they go and they they can be really big winners that's the that's the powerful thing about them
other times they fail like a lot of traits i guess but when they work boy they can be home
run trades even grand slam trades because you're looking for low volatility to transition into
large volatility and large volatility is by definition wide range move in the market
okay so we've got the setup here and as we go forward let's just go forward one bar boom one bar
okay so awesome it comes down touches the lower band we've got a red bar and it's still down here
so the squeeze is still on we're looking to go short simply because that's the direction
of the expansion and then it comes down oops green bar next day hmm okay didn't really go hesitation
not going up not going down just sideways next one okay red bar but don't get too many enamored
with green and red because remember look where the price action actually is it's inside of that
bar so this red bar in other words the high is lower than the high of the previous bar the low
is higher than the low of the previous bar so really it's inside that really no major move
okay next one again not really a significant move down still no range bar oops now we get
a green bar and whoops again uh now we've got a little higher low and a higher high on that bar
and you know oh and now no bueno muy no bueno and let's see and then it goes up again and it
comes down a little bit but our bollinger bands squeeze and that's it that's where we are as i'm
recording this today so yeah failed bollinger band squeeze these are not the ones we want to take
we got the mathematical setup so the squeeze mathematically was there meaning that it is a
low volatility period of time and that's when we want to take these
but it did not continue to move to the downside and therefore we did not make money
so we're looking for big big big moves in order to make money on these
so why didn't i take this trade why did i stay out and i'm going to show you right now
okay so charts are great we like charts but there are things that we can use in addition to charts
that will give us a unique advantage so let's pull this over here you can still see the whole thing
so right here is a very very powerful set of tools so there's duke duke energy
and now unfortunately this is today and the trade was back on the 24th i believe 24th 20th
23rd and i tried to go back with on demand with thicker swim but it didn't pull up the column
put sizzle index so but i wrote it down because like i said i was looking to take this trade and
so i actually made notes in my trading log and then even when i don't take a trade i still watch
it and i make notes of different things then i watch to see what factors carried into it that
made it succeed or fail the reason i didn't take this trade was because on the day of the trade
the put a sizzle or i'm sorry the call sizzle index right there let me expand this out so you
can see all the words call sizzle index on duke that was looking at my notes over here uh 17.23
that is huge huge so anything above one starts to get significant
what basically means is there were a lot of large calls being placed that day and call is a bullish
sentiment for the market on options so wow that's a lot 17.23 was the call sizzle index
and even one or two or three or four i'm not that concerned about um that's not significant
enough but when you get up to wow 17 and then yeah that's big money that's professional money
all right that's the smart money coming in that's power that strength betting on the bullish side so
that's why i did not go short here sure had a legitimate bollinger band squeeze going short but
where is the money where's the smart money going well they are bullish and i don't want to trade
against the smart money and right because if you bit why would you do that would you rather trade
the smart money follow the go with the flow go with the money flow literally you know they say go
on the floor with life well it applies to trading as well just go with the flow go with the money
flow go with the smart money don't go with the um well we'll just say unsmart money we're not asked
smart money and that's the beautiful thing about options is that there's no dark pools and options
so when we look at this we can actually see where the big money is now um okay call sizzle today
1.3 that's not a big deal and the put sizzle 1.29 nothing i don't care about that by the way another
thing i will look at a little extra pro tip here didn't plan on telling you this but i've got beta
here so i like to see betas over one like two or three and that is the relationship of the
movement of the individual stock to the s p 500 if it's over one that means that its volatility is
greater than that of the s p 500 in recent times and therefore we can look for a big move again
on these bollinger bands squeeze trades we are looking for big moves so we want to see
big money in the direction of the trade and not big money in the opposite direction of the trade
and we want to see it outperforming the s p 500 so there's your tips for the day by the way i'm
giving away one of my options courses for free right now and love to have you check
that out go get us three videos and they're very in-depth there's stuff like this i go deeper into
the sizzle indexes and some of these things that are behind the charts that only work for options
that make options even a in my opinion a better market and a higher probability market to trade
than straight stocks futures or forex in fact in that three video series i'll be covering
some of this a bit deeper how to trade with the smart money that's in the third video and that's
the beautiful thing options more transparent things you can look at behind just the charts
to actually see where the big money is so go check it out oh by the way it's free optionscourse.com
and uh it should be up there right now so go to freeoptionscourse.com check it out and enjoy you