Bollinger Coiling: When Volatility Compresses Before Expanding
<strong>Bollinger coiling</strong> is the state where the Bollinger Bands — typically set at two standard deviations above and below a 20-day moving average — have narrowed to historically tight width. Compressed bands mean recent price action has been unusually quiet. The coil doesn't tell you which direction the eventual break will go, but the statistical record is clear: after significant compression, volatility almost always expands.
How coiling is measured
Closelook's Temperature worker tracks Bollinger Band Width (BBW) as a percentage: the distance between the upper and lower bands divided by the middle band. When BBW drops into the lowest quartile of its own six-month history for a given instrument, the bb_coiling flag flips to true. The flag stays true until BBW expands back above the compression threshold.
What a coil signals
A coil is a conditional setup. It says: when the break comes, it will likely be directional and fast. It does not say which direction. Traders often pair the coil with other signals — trend alignment, volume patterns, cross-asset cointegration — to handicap the break direction before it happens.
The opposite state is also tracked: bb_coiling_break fires the first day BBW expands past its recent average, marking the moment the compression released. Closelook logs both the coiling-start and the break as separate events in the Lab event timeline.
Why it matters
Volatility is mean-reverting in a way that price is not. Unusually low volatility is followed by higher volatility far more reliably than unusually high prices are followed by lower prices. A portfolio positioned through a coil — even without knowing the break direction — can pre-commit to risk reduction, wider stops, or optionality strategies that benefit from rising volatility either way.
Coils in the macro basket — particularly in SPY, QQQ, and TLT — are disproportionately informative. When three or more of the 8 Temperature instruments coil simultaneously, the Lab flags a systemic coil: an increased probability of a coordinated cross-asset move. Historical systemic coils have preceded Fed decisions, geopolitical events, and earnings-driven rotations.
How to read it in the Lab
On each instrument's dimension drilldown, the Volatility dimension carries the BBW value plotted against its six-month range. Coiling periods show as compressed sections of the volatility stripe. Coincident coils across multiple instruments can be read at a glance on the 4×2 tile grid — each coiled instrument shows a dedicated marker.