Squeeze Momentum System

The Squeeze Momentum System indicator is a comprehensive volatility and momentum oscillator designed to identify market phases by combining multi-method squeeze detection with directional trend strength filtering. It helps traders distinguish between trending and sideways markets while pinpointing high-probability momentum shifts.

Usage

The indicator primarily functions as a histogram that measures price momentum relative to a "squeeze" condition. A squeeze occurs when the Bollinger Bands trade inside the Keltner Channels, indicating low volatility and potential for an explosive breakout.

• Momentum Histogram: The center oscillator changes color based on momentum slope. When the histogram shifts from red to yellow, it indicates decreasing bearish pressure. Conversely, a shift from bright blue to dark blue suggests waning bullish momentum.
• Squeeze Visuals: Crosses on the zero line signal market volatility status. Traditionally, black/gray dots indicate a squeeze (low volatility), while green/bright dots indicate the squeeze has "fired" (high volatility).
• ADX Filter: The integrated Directional Movement Index (ADX) provides a secondary layer of confirmation. A positive ADX slope above the zero line (or a specific key level) confirms a strong trend, while a negative slope in gray indicates a weak or range-bound environment.
• Divergences: The script automatically plots bullish and bearish divergences between price action and the momentum oscillator, highlighting potential trend reversals.

Details

This tool is an enhanced implementation based on the original Squeeze Momentum concept. It integrates advanced smoothing algorithms, allowing users to choose from 19 different moving average types (including ALMA, JMA, and KAMA) for both the momentum calculation and the Bollinger/Keltner bands.

The logic incorporates:

1. Squeeze Condition: Determined by the relationship between Bollinger Bands and Keltner Channels.
2. Momentum Calculation: Derived from the distance of the price relative to the Donchian mid-line and a smoothed moving average.
3. Trend Filtering: Uses a scaled ADX to ensure traders do not enter momentum signals in trendless markets.

Settings

Squeeze Momentum Indicator

• Show Momentum / Background: Toggles the visibility of the main histogram and background highlights.
• MOM Length / Source: Sets the period and price data used for the momentum calculation.
• Type: Selects the moving average method (e.g., SMA, EMA, ALMA, JMA) for the oscillator.
• SQZ Length / Source: Determines the period for the Bollinger and Keltner bands.
• BB/KC Calculation Type: Allows independent selection of smoothing methods for the volatility bands.
• Draw Divergence: Enables or disables the automatic detection of price-oscillator divergences.

Directional Movement Index

• Scale for ADX: Adjusts the vertical scaling of the ADX line relative to the histogram.
• ADX Smoothing / DI Length: Configures the sensitivity of the trend strength components.
• Key Level: Sets the threshold for what is considered a "strong" trend.
• Weak Trend Threshold: Defines the level below which the market is considered stagnant.

FAQ

How do I interpret the histogram colors?

Bright colors (Bright Blue/Red) indicate increasing momentum in the current direction. Darker colors (Dark Blue/Yellow) indicate that momentum is slowing down, often preceding a reversal or consolidation.

What does the ADX line signify?

The ADX line helps filter out "fake" signals. If the momentum histogram shows a signal but the ADX is below the key level or sloping downward, the trend may lack the necessary strength to follow through.

How do I access Squeeze Momentum System?

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