How to Trade the TTM Squeeze Indicator

TTM Squeeze Indicator overview

The TTM Squeeze indicator is a multi-component trading indicator, made by Simpler Trading, that has helped thousands of traders scale their accounts. The Squeeze itself (the dots on the zero line) is directionless, and the dots serve as an indication that a potentially explosive move in price is coming. The higher the compression, the more potential energy is building.

How to know that a squeeze is happening? The momentum oscillator shows long or short bias and potential for directional movement in stock price. If the oscillator is below the zero line, then bias is short, and vice versa. If the angle of the momentum is returning to the zero line, then there may be a pause or reversal in direction of price. If this is the case, take caution and, as always, confirm with other analyses, as no technical analysis tool should be used alone. When applied and interpreted properly, the Squeeze will add a great deal of information to your analysis in any time frame.

How does the TTM Squeeze indicator work?

The Squeeze is based on the idea that price compression leads to price expansions. If we can identify the time of a coiled market we can be in a position to take advantage of a potentially strong move in one direction. The Squeeze indicator was built from 3 components. The first two are Bollinger Bands and Keltner Channels – they trigger the red and green dots. When the Bollinger Bands (above in cyan) go inside of the Keltner Channel (above 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 of 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”. During periods of low volatility, Bollinger bands narrow and trade inside Keltner channels.

Why do we need the Squeeze?

Markets are choppy and trade sideways around 80% of the time – the other 20% of the time, they are making directional moves. John Carter created the Squeeze to identify when to enter a trade in such moves BEFORE the tickers take off. The goal is being positioned in a move early enough to take profits as the trade takes off, and other traders finally take notice of the move. In summary, you can use the Squeeze to: 

• To time directional moves
• To stay out of premium selling plays when you believe a big directional move is going to happen

How to Read 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 histogram indicates momentum. If the histogram is rising / increasing, the histogram will be yellow or cyan / light blue. If momentum is decreasing, the histogram will be red or dark blue.

Using the Squeeze on different time frames

The squeeze can be used on any time frame, on any chart. The key to using it, is just understanding that once the squeeze fires, it usually lasts 8-10 bars. Examples:

• 5-minute chart: 5 minutes x 8 = 40 minutes.
• 30-minute chart: 30 minutes x 8 = 240 minutes
• Daily chart: 8-10 days
• Weekly Chart: 8-10 weeks
• Monthly Chart: 8-10 weeks

How do I get the Squeeze?

The Squeeze is built into the TOS platform. If you use TOS, find it by going to: Studies > Add study > John Carter’s Studies > TTM_Squeeze.

If you are not using TOS and would like to try out the Squeeze on Tradestation before purchasing it from Simpler Trading, you can go to the Tradestation app store and use it for a monthly fee. Additionally, the Squeeze can be also purchased for Trading View and Infinity.

Settings

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 the 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.

Squeeze Scan in TOS

You can also scan for Squeezes in Thinkorswim! Take a look here to see how you can automatically filter out stocks that are in Squeezes. See the below script that can be used to make a custom scan filter in the TOS Stock or Options Hacker.

# Standard Squeeze Scan
TTM_Squeeze().SqueezeAlert == 0

# Standard squeeze for last 5 bars
sum(TTM_Squeeze().SqueezeAlert ==0, 5) == 5