Historical Volatility Squeeze

Overview

HV Squeeze uses the same Bollinger Band squeeze detection as BB Squeeze — the bands are computed and used directly. What differs is the filter set: a lower volume threshold (1.5x vs 2.0x) and a candle-color direction filter instead of the EMA trend.

The hypothesis: a lighter filter set (previous candle color instead of EMA trend, a lower volume bar) might catch expansions that BB Squeeze’s stricter filters miss.

How It Works

1. Detect Squeeze — BB (20, 2σ) width drops below 0.8x its own 20-period moving average; a squeeze within the last 10 candles qualifies
2. Wait for Expansion — BB width increasing (current > previous)
3. Volume Filter — previous candle’s volume >= 1.5x its 20-period average
4. Direction Filter — previous candle color (bearish candle + close below BB mid = SHORT)
5. Enter Short — Same risk management (SL 10%, TP 8%, 48h max hold)

Test Results

Metric	HV Squeeze	BB Squeeze	Difference
Win Rate	58.1%	68.6%	-10.5%p
Profit Factor	1.42	2.22	-36%
Signal Overlap	85%	—	—
Unique Signals	15%	—	—

The 15% of unique HV signals (those BB Squeeze missed) had a win rate of 47% — below breakeven.

Why It Was Shelved

1. 85% signal overlap — HV and BB Squeeze fire at nearly the same time, making HV redundant
2. Unique signals underperform — The 15% of signals only HV catches are actually losers
3. Complexity without edge — Adding a second volatility measure doubles code maintenance but adds zero PnL
4. BB Squeeze already validated — 2+ years, 535 coins, 2,898 trades. No reason to replace a working system with an equivalent one

Lesson Learned

Not every variation of a working idea is an improvement. Sometimes the first implementation is also the best one.

HV Squeeze taught us that indicator substitution is not optimization. The edge in BB Squeeze comes from the squeeze-to-expansion transition pattern, not from the specific method of measuring volatility. BB and HV measure the same underlying phenomenon — price compression — just with different math.

Potential Revisit

HV Squeeze could become relevant if:

• BB Squeeze edge degrades below profitability threshold
• Market microstructure changes (e.g., new exchange mechanisms alter BB behavior)
• Combining both as an ensemble shows uncorrelated alpha on the 15% unique signals

For now, simplicity wins. One validated signal is better than two redundant ones.

Status: SHELVED

Scope note: The frontmatter shows coins: 235, which reflects the current OKX universe. “577 coins” below refers to the original January 2026 Binance-era test run. Both numbers are correct for their respective contexts.

Not actively traded. Last tested: January 2026 on 577 coins with 2+ years of data.