The Squeeze setup occurs in situations of low volatility. Two versions of the Squeeze are frequently discussed, namely that of John Bollinger in his book “Bollinger on Bollinger Bands®” and John F. Carter in “Mastering the Trade”. Other than the below description, you may review our Squeeze Indicator Spotlight (with video).
Indicator Description
The Bollinger Band Squeeze
Bollinger Bands® display standard deviation levels above and below a moving average. During periods of high volatility, the bands will widen and conversely, narrow during less volatile periods. A Bollinger Band Squeeze occurs when the standard deviation of the Bollinger Bands®, reach a minimum for a 120 bar lookback period. In order to identify breakouts, Bollinger suggests using the Relative Strength Index (RSI) together with a volume-based indicator.
Carter’s TTM Squeeze / Bollinger Keltner Squeeze
Carter’s approach compares true range volatility with directional volatility. If the Bollinger Bands narrow in width to a point where they are inside the Keltner Channel, it constitutes a Bollinger Keltner Squeeze, or what Carter labels as a TTM Squeeze. Accordingly, it does not necessarily constitute a low volatility scenario, but rather a consolidating or sideways moving market.
Breakouts will occur once the Bollinger Bands move back outside the Keltner Channel. Carter then validates these setups using a 13 bar momentum period.
Finally, this Squeeze indicator applies the ATR as opposed to the average range. Also, a fast and slow Balanced Momentum is applied to determine the trend direction. Accordingly, this Bollinger Keltner Squeeze is not an exact replica of the TTM Squeeze.
The LizardIndicators Squeeze
This version will identify one of the following squeeze scenarios:
- Bollinger Bands Squeeze: Occurs when the standard deviation reaches a threshold of low volatility, compared to the 120 bar lookback period.
- TTM Squeeze / Bollinger Keltner Squeeze: Occurs when the Bollinger Bands moves inside the Keltner channels (consolidation).
- Full squeeze: Occurs when both the Bollinger Squeeze and Carter’s TTM Squeeze apply at the same time, i.e. low volatility and low true range volatility.
For the Bollinger Squeeze, the volatility threshold has to be low (not a minimum measure as defined by Bollinger as compared to the 120 bar lookback period). The default threshold value is set to 1.2. Increasing the threshold will deliver fewer low volatility setups.
The above squeeze scenarios must be aligned with two momentum periods, 10 and 25 bars. Also, a Balanced Momentum calculation is applied, eliminating distortions from the lookback period and reducing the number of noise signals.
Squeeze breakouts have to confirmed by price action. For long signals, the signal bar has to close above the high of the previous bar (Up Thrust Bar). For short signals, the signal bar has to close below the low of the previous bar(DownThrust Bar).
Our Squeeze indicator also comes with the following options to filter signals:
- Minimum bar duration period for the squeeze (default 3 bars)
- Maximum number of bars for when a signal bar has to plot (default 5 bars)
Finally, the Market Analyzer has three columns to access the following information:
- Squeeze: On (+1), Squeeze Off (0)
- Momentum Trend: Long (+1), Short (-1) or Neutral (0) (3)
- Trade Signals: Long Signal (+1), Short Signal (-1) and No Signal (0)
Other Library Indicators
The library has a separate version of this indicator displaying the Squeeze momentum setup via channel lines.
You may increase the probability of locating profitable setups from the Squeeze momentum indicator by determining the higher time frame trend bias, analyzing range / volume and avoid entries that run into key support / resistance levels. A variety of Support / Resistance indicators are available from the Session Tools and Fibonacci indicators categories, including the Current Day Fibonacci Levels / Prior Day Fibonacci Levels, Current Week Fibonacci Levels / Prior Week Fibonacci Levels, the Current Month Fibonacci Levels / Prior Month Fibonacci Levels and the Current N Month Fibonacci Levels / Prior N Month Fibonacci Levels . A Indicator Spotlight looked at Fibonacci Retracement Levels specifically.
Additional support resistance levels can be found using the Average Range for a daily, weekly or monthly lookback period. This may for example be done using a ADR indicator, alternatively the Weekly Range Projections / Monthly Range Projections. The Indicator Spotlight furthermore reviewed the Average Daily Range Projections.
For volume analysis you may consider the Better Volume indicator, Force Index or Relative Volume. Our NinjaTrader Relative Volume indicator was discussed in our Indicator Spotlight. For instruments that lack reliable volume information (FX/Crypto currencies), you may consider analyzing Relative Ranges. The Relative Ranges indicator was also reviewed in the Indicator Spotlight. A separate Range Analysis indicator can also be used to determine a higher timeframe consolidation / contraction period, as discussed in our Indicator Spotlight on the Opening Range Breakout Strategy.
Finally, managing open profits may be done by using the Wilders Volatility Stop. Other trailing stop indicators are available from the Trailing Stops category.
The indicator is available for NinjaTrader 8.
