John Carter from Trade the Markets (at present known as Simple Trading) created TTM Squeeze is a momentum and volatility indicator that takes advantage of price’s tendency to change violently after combining in a narrow trading range.
What is the TTM Squeeze indicator?
A TTM Squeeze represents a trading indicator based on volatility measure that uses Keltner Channels and Bollinger Bands to gauge price compression. Squeeze implies a moment when the Keltner Channels entirely encircle Bollinger Bands during a time of extremely low volatility.
The squeeze is considered to have “fired” when the Bollinger Bands move back and enlarge outdoors of the Keltner Channel; prices are probable to break out of that close-fitting trading choice in one path or the other as volatility rises. Small points on the zero lines of the pointer indicate whether the squeeze is on or off: red dots show that the congestion is on, and green dots show that the congestion is off.
When the TTM Squeeze pointer fires, it also utilizes a motion oscillator to display the expected path of the move. This histogram wavers near the zero lines; rising momentum beyond the zero lines indicates a buying opportunity, while decreasing momentum under the zero lines indicates a selling opportunity.
Below is MT4 variation of indicator:
How Can You Calculate TTM Squeeze?
The squeeze on and off dots and the motion histogram are the two modules of the TTM Squeeze pointers to compute.
Calculate the Bollinger Bands on behalf of security first. Carter utilizes the usual Bollinger Band sets of 2 standard aberrations and 20 periods, but you can change these to suit your trading requirements.
Second, determine the security’s Keltner Channels. Carter utilizes a 20-period touching average and ATR, as well as a 1.5-period ATR multiplier, although these values can be changed.
Note: Carter calculated the Keltner Channels for the TTM Squeeze indicator using the unique Keltner Channels method established in 1960 by Chester W. Keltner. The modified Keltner Channels model was created in 1980 by Linda Raschke.
The formula for identifying the squeeze condition is easy once the lower and upper Keltner Channels and Bollinger Bands have been computed. Then, the squeeze is on for that period if both of the subsequent situations are true:
Upper Bollinger Band < Upper Keltner Channel
Lower Bollinger Band > Lower Keltner Channel
If one or the other Bollinger Bands trades outside of the Keltner Channel, the squeeze is off for a time.
A curved momentum oscillator is also included in the TTM Squeeze indicator to highlight the breakout’s likely direction. The momentum oscillator is created using the methods below in StockCharts’ enactment of TTM Squeeze.
Analyze the Donchian midline for the offer total amount of momentum time (default is 20):
(lowest low in 20 periods + Highest high in 20 periods ) / 2
Second, calculate the SMA of the closing (so by evasion, a 20-time SMA of rates) for the total amount of momentum time.
Third, using the formula below, calculate the outlet between the average and close of a Donchian SMA and midline values:
Close – ( (Donchian midline + SMA) / 2 )
Finally, smooth the delta price using linear regression. Although the method for linear reversion is outside the choice of this essay, it effectively seeks out the “best fit” line given the feasible information. The values of the motion histogram indicate how much below or above the average the value is likely to move.
Both momentum and volatility are included in a TTM Squeeze indicator. The Squeeze dots show when volatility circumstances are favorable for buying; the motion histogram suggests whether to trade long or short.
The motion histogram aids in determining which direction to trading. If the momentum is beyond and rising the zero lines (light blue slabs), purchase long; if the momentum is falling and under the zero lines (dark red bars), short.
The motion bars are color-coded to make them easier to understand. Blue bars appear beyond the zero lines, whereas red bars appear under the zero line. A poorer bar than the preceding bar is a darker color (darker red or darker blue ), while a more advanced bar than the preceding bar is a lighter color (lighter red or light blue).
Later a squeeze fires. Price swings usually last 8-10 bars. Once the histogram reverses its orientation and begins to fall rear towards the zero lines, it’s time to sell.
The motion histogram can be utilized to pinpoint precise exit sites as well. When you have two bars of the latest color, Carter suggests selling. If a squeeze occurs and the bars are blue (increasing and above the zero lines), he suggests selling when two brighter blue bars (above the zero lines and decreasing) appear in succession.
The TTM Squeeze pointers apply to a wide range of timeframes. For validation, many characteristics appear at the same safety in different time frames. A squeeze that fires on both an hourly and daily chart simultaneously, for example, is a stronger signal than one that fires on one period.
The TTM Squeeze pointer tracks both momentum and volatility to identify trade opportunities based on security volatility changes. After times of low volatility, the indicator’s volatility component (the squeeze dots) predicts potential breakouts. The motion histogram indicates the breakout’s anticipated direction, which can aid in determining exit spots.
Traders should utilize the TTM Squeeze pointer in combination with different analysis and indicators methodologies, as they should with all indicators.
The indicator defaults to basic original Keltner Channel and Bollinger Band settings, as well as a 20-time motion histogram. Still, you can change the number of other and periods settings to suit your technical needs.