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Looking for Volatility Contractions

(by Arthur Hill )

Volatility contractions often precede volatility expansions. This is the rational behind Bollinger Bands. After surging above 5.5, Ford (F) formed a long consolidation and Bollinger Bands contracted as the range narrowed. The subsequent move above resistance and the upper Bollinger Band triggered the volatility expansion (breakout).

Note: This is an educational post featuring a technical analysis technique.