The Squeeze Momentum Indicator is a powerful technical analysis tool that is a combination of Bollinger Bands and Keltner Channels. The Squeeze Momentum is particularly useful for traders looking to trade in a sideways market, as it can detect periods when prices are stuck before making a sharp move.
Squeeze Momentum Indicator: What is it and how is it calculated?
The Squeeze Momentum Indicator combines two popular technical analysis tools: Bollinger Bands and Keltner Channels. This innovative indicator is calculated by plotting price movements on the 20-day moving average of Bollinger Bands and Keltner Channels, as well as two lines above and below this average.
The Squeeze Momentum Indicator is designed to assess the impact of band contraction on market momentum. A Plus Signal (black "+", blue "+", gray "+") and histogram based on Bollinger Bands and Keltner Channels are used to generate the Squeeze Momentum.
How to use Squeeze Momentum Indicator?
The Squeeze Momentum Indicator offers numerous advantages to traders, providing valuable insights into market trends and potential shifts in momentum. One common application of this indicator is to anticipate market movements when the Bollinger Bands and Keltner Channels contract, allowing traders to capitalize on these fluctuations. Additionally, the Squeeze Momentum Indicator can be used to validate trading signals generated by other technical analysis tools.
The indicator produces both positive and negative values, with positive values signifying an upward price movement and increasing momentum, while negative values indicate a downward price movement and decreasing momentum. Each bar in the Squeeze Momentum histogram represents the degree of tightness between the narrowing bands. A higher Squeeze Momentum Indicator value corresponds to tighter bands, suggesting that a sharp price movement may be imminent.
During periods of high market volatility, it is advisable to use the Squeeze Momentum Indicator in conjunction with other technical analysis tools, such as the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD), for optimal performance. It is important to remember that no technical indicator is flawless, and thorough research should be conducted before executing any trades based on these tools. By employing a combination of these indicators, traders can make more informed decisions and potentially enhance their overall trading strategies.
It's important to note that the Squeeze Momentum may not work correctly during periods of high volatility. Therefore, it's recommended that traders use it in conjunction with other indicators and analysis tools such as RSI or MACD.
Additionally, traders should keep in mind that no technical indicator is foolproof and that they should always conduct their own research and analysis before making any trades.
Squeeze Momentum Parameters
Upon examining the parameters of the Squeeze Momentum Indicator, we find the following components:
"BB Length": The length of the Bollinger Bands utilized by the indicator,
"KCLength": The length of the Keltner Channels employed by the indicator,
"KCMultFactor": The coefficient applied in the Keltner Channels calculation,
"BBMultFactor": The coefficient used in the Bollinger Bands calculation.
The indicator's default values are illustrated in the accompanying image. When utilizing the Squeeze Momentum Indicator, you have the option to either work with these default values or customize the parameters to better align with your unique trading preferences and strategies.
By tailoring the indicator to suit your specific needs, you can potentially enhance its effectiveness and better understand market trends and momentum shifts.
Squeeze Momentum Return Values
The Squeeze Momentum Histogram is depicted by alternating red and green bars on the chart, providing a visual representation of market momentum. In contrast, the Squeeze Momentum Plus Signal reveals the color of the "+" sign at the 0 point on the graph, which can vary depending on the trading platform being used. In Traderlands, for instance, the "+" sign colors are displayed as follows:
Black "+": 1
Blue "+": -1
Gray "+": 0
It is important to note that the return values should be utilized with either 1.0 or -1 in the rule group when working with the Squeeze Momentum Plus Signal. For instance, if a rule group is created with the condition Squeeze Momentum Plus Signal < 3, the condition will always be considered true.
Consequently, traders must exercise caution and carefully interpret the Squeeze Momentum Plus Signal to ensure accurate analysis and decision-making in their trading strategies.
Squeeze Momentum Indicator at Traderlands Strategy Creator Tool
You can start creating a strategy by selecting the "Squeeze Momentum Histogram" and “Squeeze Momentum Plus Histogram” from the list. An example strategy is shown in the image below. You can use the Squeeze Momentum indicator to create a strategy after doing your own research.
Enter Algorithm Rules You Can Add To Strategy Creator For Long Strategy
Enter Algorithm Rules You Can Add To Strategy Creator For Short Strategy
Exit Algorithm Rules You Can Add To Strategy Creator For Long Strategy
Exit Algorithm Rules You Can Add To Strategy Creator For Short Strategy
WARNING: The entry and exit strategies in the images are prepared ONLY for educational purposes to explain how indicators work. It does not guarantee any profit.
When creating an algorithmic trading strategy, a rule set is usually created by using more than one indicator.
Overall, the Squeeze Momentum is a powerful momentum indicator that can help traders anticipate market moves in sideways markets. By combining it with other indicators, traders can gain deeper insights into market trends and make more informed trading decisions. However, as with any technical analysis tool, traders should exercise caution and conduct their own analysis before making any trades.
