Range Compression and Expansion: The Squeeze Before a Move
Range compression is a stretch of narrow candles and falling volatility, where price coils in a tight box. It often resolves with an expansion candle that breaks the box. Compression describes building energy; the direction of the resolution is not predetermined.
Show the underlying data
| Day | Price / index level | Volume |
|---|---|---|
| 1 | 200 | 1 |
| 2 | 204 | 0.9 |
| 3 | 202 | 0.8 |
| 4 | 205 | 0.8 |
| 5 | 203 | 0.7 |
| 6 | 204 | 0.7 |
| 7 | 205 | 0.8 |
| 8 | 204 | 0.7 |
| 9 | 205 | 0.8 |
| 10 | 206 | 0.9 |
| 11 | 207 | 1.4 |
| 12 | 212 | 2 |
| 13 | 218 | 2.2 |
| 14 | 225 | 1.9 |
| 15 | 232 | 1.7 |
The setup
The Index trades in a tight box near a compression cap around 206, with narrowing daily ranges and quiet volume.
What triggers it
After repeated tight sessions, an expansion candle breaks decisively beyond the box on rising volume.
What it means
Compression followed by expansion is the structure. It is symmetrical — the box can break either way — so the pattern is about volatility regime change, not a guaranteed direction.
Confirmation checklist
- Has the daily range genuinely narrowed over several sessions?
- Did the expansion candle close decisively beyond the box, with volume?
- Is the breakout confirmed, or does it fall straight back inside (a failed break)?
- Remember: compression does not pick a direction; this is not a signal.
Common mistakes
- Assuming compression resolves in the prior trend's direction — it can break either way.
- Acting on the first poke out of the box before a decisive close.
Metric glossary
ATR (Average True Range)
ATR (Average True Range) is a volatility measure that summarises how much an instrument's price has moved, on average, over a chos…
Definition →Breakout
A breakout is when a stock's or index's price moves beyond a previously defined boundary — such as the top of a trading range, a s…
Definition →False Breakout
A false breakout occurs when price moves beyond a defined level such as a support, resistance, trendline, or the day's opening ran…
Definition →Frequently asked
Does range compression predict the breakout direction?
No. Compression is symmetrical — the box can break either way. It describes a volatility squeeze, not a direction.
What confirms an expansion?
Educationally, a decisive close beyond the box on rising volume, rather than a single poke that falls back inside.
Is this a trade setup?
No. It is an educational explanation of a volatility structure, not a recommendation.
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