The Squeeze Indicator
Pinpoint high probability moments in time for greater than expected moves with the ST Squeeze Indicator!
What is The Squeeze?
The Squeeze is the indicator that built Simpler Trading and has helped thousands of traders build their accounts, too.
The Squeeze is based on the idea that price compression leads to price expansions. If we can identify these times when a market is “coiling” we can be in a position to take advantage of the directional move.
Every trader at Simpler Trading uses the Squeeze, and for good reason. There is no better indicator to show these times of opportunity right before a directional move.
The Squeeze indicator was built from 3 components. The first two are Bollinger Bands and Keltner Channels. These are what trigger the red and green dots. When the Bollinger Bands (below in cyan) go inside of the Keltner Channel (below in red), the market is said to be in a squeeze. The dots across the zero line of the Squeeze indicator will turn RED, signifying this period market compression. Once the Bollinger Bands expand and again move outside the Keltner Channel, the dots will turn GREEN, signifying that the squeeze has “fired”
The final component of the Squeeze indicator is a momentum indicator. Once the Bollinger Bands move outside of the Keltner Channel, a Squeeze has “fired”. In order to determine the direction of the move, we then look to the momentum. If the angle of the momentum bars are positive, then squeeze has fired long. Inversely, a short squeeze would be signified by negative momentum. (The yellow arrows below show the formation of 2 squeezes with corresponding momentum readings.)
Reading the Squeeze Indicator
The red and green dots along the zero line indicate if there is a squeeze. A red dot means there is a squeeze condition in effect. A green dot means that we are not currently in a squeeze. The first green dot after one or more red dots is where the squeeze is said to have “fired”.
The red and blue histogram indicates momentum. If above zero momentum is increasing, the histogram will by light blue. If above zero momentum is decreasing, it will be dark blue. Inversely, the histogram will paint light or dark red to portray increasing or decreasing momentum below the zero line.
You can use the default inputs for the indicator or modify them to suit your needs. The above image should be what you see using the default indicator settings.
Price –Sets what bar price to calculate indicator based on; default is close.
SymbolType–Futures=1, Stocks=2, Forex=3.
Length–Number of bars used in the indicator calculation; default is 20.
nK–Sets the offset of the Keltner Channel; default is 1.5.
nBB–Sets standard deviation of the Bollinger Bands; default is 2.
AlertLine–Leave set to default value of 1.
NormalColor–Sets the dot color when squeeze settings are met.
AlertColor–Sets the dot color when squeeze settings are no longer met and squeeze has fired.
HistabvZeroUpColor–Sets the color of histogram bars when above zero momentum is increasing.
HistabvZeroDwnColor–Sets the color of histogram bars when above zero momentum is decreasing.
HistblwZeroFallColor–Sets the color of histogram bars when below zero momentum is decreasing.
HistblwZeroRiseColor–Sets the color of histogram bars when below zero momentum is increasing.
SqueezeAlert –Turns on or off the Squeeze audio alert.
CrossAlert –Turns on or off the alert for when momentum crosses the zero line.
Using the Squeeze Indicator
To use the Squeeze indicator in Thinkorswim, right click on a chart and select ‘Insert Analysis Technique’. Scroll down the list and click on ‘Squeeze’. Click ‘OK’ and this indicator will appear on your chart.Below is the same chart that was on the previous page, but the component indicators have been removed and replaced with the the Squeeze. The long signals are much clearer and easier to read.
How we use it?
This is an important indicator because a Squeeze can be a harbinger of a major directional move to come. This gives us an edge when trading stocks, options, or futures and we like to focus on these setups.
The Squeeze is building when you see red dots on the indicator and a “Squeeze fire” happens when a green dot follows a series of red dots.
Squeezes happen on all time frames, and the best setups have multiple Squeezes on multiple time frames
Which platforms is the Squeeze Indicator available for currently?
Thinkorswim - Free
Thinkorswim offers the Squeeze for FREE and you can add it to your charts by selecting the Squeeze from the list of John Carter's studies.
Tradestation and NinjaTrader - Click here for more information on how to purchase the Squeeze.
As for getting the Squeeze set up in Tradestation and Ninja Trader, we do offer the tool there as well and you can find out more by clicking here.