Range Expansion and Compression
Range compression means a defined measure of recent movement has narrowed. Expansion means it has widened. These describe volatility, not the direction or guaranteed profitability of the next move.
How it works
Choose a measure such as high−low, ATR or band width and a historical comparison window. A percentile is relative to that sample. Use comparable session lengths and recognize that the distribution changes across regimes.
Worked example
The last 20 daily ranges average 4, while the most recent five average 1.5. The recent-to-baseline ratio is 1.5/4=0.375. A next-day range of 6 is an expansion relative to both baselines, but it could occur on a rising day, falling day or a volatile round trip.
Amounts, prices and scenarios are fictional teaching examples. They exclude any effects not explicitly stated and are not trade recommendations.
Limits and common mistakes
A quiet period can persist. Opening gaps can invalidate intrabar assumptions, and scaling size upward because recent movement is small can magnify exposure to a volatility jump. Thresholds selected after observing a breakout are not out-of-sample evidence.
Knowledge check
Does compression tell you which direction to trade?
Read the explanation
No. It measures recent movement. Any directional rule needs a separate, prospectively testable definition.
References and further reading
These sources explain the underlying concepts and specifications. They do not endorse QBMFX Academy. Check the relevant market, protocol version and reporting rules before applying an example.