Bollinger Band - Keltner Squeeze - Failed Volatility Breakout

The Bollinger Band - Keltner Squeeze - Failed Volatility Breakout indicator is a specialized technical analysis tool that identifies periods of low volatility by highlighting areas where Bollinger Bands contract within Keltner Channels. This tool is designed to assist traders in identifying potential "squeezes" that often precede significant price breakouts or failed volatility breakout (FVBO) setups.

Usage

This script displays both Bollinger Bands and Keltner Channels on the chart to provide a visual representation of volatility relative to price action. Its primary function is to highlight the "squeeze" condition, which occurs when the market enters a period of consolidation and the Bollinger Bands move inside the Keltner Channels.

Traders can use this tool to:

• Identify Squeezes: Use the background highlighting to quickly spot when the market is compressing.
• FVBO Strategy: Manually backtest or trade the Failed Volatility Breakout system by monitoring these squeeze zones on higher timeframes like the Daily chart.
• Alert Integration: Set up alerts based on the "BB-Kelt Squeeze" condition to be notified when volatility reaches a specific compression threshold.

The indicator offers two modes for identifying a squeeze:

1. Both: The condition is only met when both the upper and lower Bollinger Bands are inside the Keltner Channel.
2. At Least One: The condition triggers if either the upper or lower Bollinger Band enters the Keltner Channel.

Details

The script calculates standard 2-deviation Bollinger Bands and Keltner Channels using an Exponential Moving Average (EMA) and True Range. The squeeze logic is based on the interaction between these two volatility envelopes. When the tighter Bollinger Bands "hide" within the wider Keltner Channels, it signifies a decrease in volatility that historically leads to an explosive move or a reversal from a failed breakout attempt.

Settings

Inputs

• Length: Sets the lookback period for both the Bollinger Band and Keltner Channel calculations.
• Source: Determines the price data used for the calculations (default is Close).
• BB Standard Deviation: Adjusts the width of the Bollinger Bands (default is 2.0).
• Use True Range for Keltner: Toggles between using True Range (TR) or a simple High-Low range for the Keltner Channel calculation.
• Keltner Range: Sets the multiplier for the Keltner Channel width (default is 1.5).
• Bollinger Band Crossover Condition: Choose between requiring "Both" bands or "At Least One" band to be inside the Keltner Channel to trigger a squeeze highlight.

FAQ

How do I interpret the background highlighting? The highlighted areas represent a volatility squeeze. This indicates that price is consolidating, and a volatility expansion is likely to follow.

Can I use this with other indicators? Yes, though since this script plots its own Bollinger Bands and Keltner Channels, it is recommended to hide other instances of these indicators to maintain chart clarity.

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