Squeeze Momentum Indicator + Didi Index

The Squeeze Momentum Indicator + Didi Index tool combines a volatility-based momentum oscillator with a trend-following moving average index to identify potential market breakouts and trend shifts.

Usage

This script can be used to identify periods of consolidation and the subsequent directional momentum that follows a "squeeze."

• Squeeze Points: The crosses at the zero line indicate market volatility. When the Bollinger Bands fall within the Keltner Channels, a "squeeze" is active (highlighted on the zero line), suggesting low volatility and potential for a breakout.
• Momentum Histogram: The histogram measures the distance of the price from a linear regression average. Bright colors indicate strengthening momentum, while darker shades indicate weakening momentum.
• Didi Index: This consists of two lines (Short and Long) derived from moving average differences.
  • A bullish signal occurs when the Didi Short line (Green) crosses above the Didi Long line (Red).
  • A bearish signal occurs when the Didi Short line crosses below the Didi Long line.
• Convergence: Traders often look for the Didi Index crossover to occur simultaneously with a momentum shift on the histogram for higher probability entries.

Details

The indicator merges two popular technical analysis concepts:

1. Squeeze Momentum: Based on the work by John Carter, it uses Bollinger Bands and Keltner Channels to detect volatility compression. The momentum component uses a linear regression of price relative to the average of the highest high and lowest low over a lookback period.
2. Didi Index: Developed by Odir Aguiar, it utilizes the relationship between three moving averages (Short, Mid, and Long). By subtracting the Mid-term SMA from the Short and Long SMAs, it creates a centered oscillator that highlights trend rotations.

Settings

Bollinger Bands (BB)

• BB Length: The lookback period for the Bollinger Bands calculation.
• BB MultFactor: The standard deviation multiplier for the Bollinger Bands width.

Keltner Channels (KC)

• KC Length: The lookback period for the Keltner Channels calculation.
• KC MultFactor: The multiplier applied to the range (Average True Range or High-Low) to determine channel width.
• Use TrueRange (KC): When enabled, uses the True Range for calculation; otherwise, uses the simple High-Low range.

Didi Index

• Didi Short Length: The period for the short-term moving average.
• Didi Mid Length: The period for the medium-term moving average (used as the baseline).
• Didi Long Length: The period for the long-term moving average.

FAQ

How do I interpret the squeeze points?

Squeeze points on the zero line indicate whether the market is in a squeeze (Bollinger Bands inside Keltner Channels) or out of a squeeze. A change in the color of these points often precedes a significant move in price.

What do the histogram colors represent?

Bright green indicates bullish momentum is increasing, while dark green indicates it is slowing down. Bright red indicates bearish momentum is increasing, while dark red indicates it is slowing down.

How can I access Squeeze Momentum Indicator + Didi Index?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.