Squeeze momentum indicator logic how to#

However, despite the simple indication in the form of the histogram colour, traders may experience difficulties in identifying the direction, in which the price would move after a breakout. You can use the following as exit signals: If movements on different time-frames coincide, it intensifies signals. The average movement lasts for about 8-10 bars.

You should stay in the trade until the histogram becomes bigger/smaller. If the histogram is above zero, a long position should be opened, if it is below zero – a short one. John Carter writes that, technically, the first grey dot shows the trade entry. At these moments, ‘energy is released’ and bands expand. Technically, the SM indicator looks for places where Bollinger Bands go outside ATR.

Keltner Channel measures Average True Range (ATR).

If they expand, it means that there was a breakout and the volatility increased. If they shrink, it means that the market is inactive. Bollinger Bands measure volatility in the market.

Bollinger Bands measure a standard price deviation from the average value.

In fact, Squeeze Momentum combines two indicators – Bollinger Bands with 20.2 settings and Keltner channel with 20 and 1.5 settings – and helps to find consolidation periods, after which a breakout may take place and the trend price movement may start. Despite the fact that SM is a technical indicator, it is not lagging and can give a warning about a price reversal. Similarly, it is dangerous to short new highs during an obvious bullish trend. However, if he buys on a new high during a flat, he will be losing his capital.

Squeeze momentum indicator logic how to#

įor example, a trader can confidently buy on a new high during a trend market ( how to identify a trend day ). It is also very important for traders to understand the current market state because different types of trades work differently in the trend and flat. Traders like to trade such breakouts very much because these breakouts are often followed by a strong and lengthy trend movement, on which they can make money. There is always a breakout after the flat movement (especially if it lasts long enough). The market consolidates 80% of time and only 20% of time it moves in a certain direction. Squeeze Momentum shows periods when volatility increases or decreases, in other words, when the market goes from the trend into flat movement and vice versa.

He made USD 18.2 million on options and futures trading in 2020, which is 1,270% of annual yield. The indicator was created by John Carter.