5 volatility compression patterns
Volatility compression setups: Bollinger squeeze, TTM squeeze, NR7, inside bars and ADR contraction, which say an expansion is coming without saying which way.
What volatility compression patterns have in common
Volatility is mean-reverting: unusually quiet periods tend to be followed by more active ones. This family measures that quiet in different ways: the width of Bollinger Bands, the relationship between two volatility measures, the range of a single bar against its neighbours, the average daily range over weeks. What none of them measures is direction, which is why every pattern in this family is classified as neutral.
- Each measures how compressed volatility is relative to the stock's own history, never against an absolute threshold
- None of them carries directional information, because the expansion they anticipate can resolve either way
- They are filters that need a structural reason to supply the direction
- Compression can persist far longer than seems reasonable before it resolves
What these patterns are telling you
A compressed stock is not necessarily a coiled one. Volatility falls when a stock is quietly being accumulated, and equally when nobody is interested in it any more, and on a volatility measure alone those two states look identical. Inside a well-formed base with the stock above rising averages, compression is constructive. Below falling averages it usually just means apathy. PatternGrade weights that surrounding structure, so a squeeze is graded on the company it keeps rather than on its own.
PatternGrade grades what it finds and publishes how each grade has performed. It is not a financial advisor and does not give buy or sell recommendations.
Every volatility compression pattern PatternGrade scans
Rescanned across ~4,500 US stocks end-of-day, after every close.
NR7 (Narrow Range)The narrowest daily range of the last seven sessions: a compression signal that often precedes an expansion. Scanned after every close across US stocks.
Bollinger SqueezeBollinger Bands contracting to unusually narrow width, signalling a coming volatility expansion. Scanned across every liquid US stock after every close.
TTM SqueezeJohn Carter's squeeze: Bollinger Bands contracting inside the Keltner Channels. PatternGrade scans every liquid US stock for active squeezes.
ADR ContractionAverage daily range contracting well below its own norm: volatility compression measured in plain percentage terms.
Inside BarA session whose entire range sits inside the previous session's range. PatternGrade scans every liquid US stock for inside bars after each close.
Volatility compression patterns FAQ
Which way does a volatility squeeze break?
The measurement does not say, and any tool that claims otherwise is adding a directional input it has not told you about. Compression says an expansion is more likely than usual. Direction has to come from the structure the squeeze forms inside, which is why PatternGrade classifies every pattern in this family as neutral.
How long does a volatility squeeze last?
Days to a couple of months, with no dependable duration. The folklore that longer squeezes produce larger moves is looser than it sounds. What is reliable is that compression does eventually resolve. The uncertainty is entirely about when and which way.
What is the difference between a Bollinger squeeze and a TTM squeeze?
The TTM version adds a second condition: the Bollinger Bands must contract entirely inside the Keltner Channels. Because the bands use standard deviation and the channels use average true range, that crossover marks a specific and less frequent kind of compression than band width alone.
Is NR7 the same as an inside bar?
No, though a bar can be both. NR7 means the narrowest range of the last seven sessions. An inside bar means the entire range fits inside the previous bar's. An NR7 after a wide day can still exceed the prior bar's extremes, and an inside bar after a quiet day need not be especially narrow.
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