Squeeze Momentum Oscillator

The Squeeze Momentum Oscillator indicator is a comprehensive volatility and trend analysis tool that combines momentum tracking with market squeeze detection to identify potential breakouts and trend reversals.

Usage

The Squeeze Momentum Oscillator can be used to identify periods of low volatility followed by explosive price movements. Users should monitor the following components:

• Momentum Phases: The oscillator displays underlying momentum as a filled area that shifts between green (bullish) and red (bearish). When the value is above zero, it indicates bullish momentum, while values below zero indicate bearish momentum.
• Squeeze Detection: The central baseline (plotted at Level 2) changes color based on volatility conditions. A gray or orange line indicates a normal squeeze or consolidation phase, suggesting a breakout may be imminent.
• Hyper Squeeze: A yellow signal on the baseline indicates a "Hyper Squeeze," which occurs during extremely suppressed volatility. This is often a precursor to high-momentum market movements.
• Divergences: The script automatically detects regular bullish and bearish divergences between the price and the swing momentum (z-score), plotted as labels on the oscillator. These serve as early warnings for potential trend reversals.

Details

The script integrates the logic of Squeeze & Release with normalized momentum calculations. It calculates a Squeeze Value (SV) by comparing the EMA of the Average True Range (ATR) against the EMA of the price high-low range. This allows the tool to quantify how compressed the price action is relative to historical norms.

The momentum component utilizes a z-score normalization of price relative to its EMAs of significant highs and lows. This dual-layered approach—tracking both "Underlying Momentum" for the trend and "Swing Momentum" for short-term cycles—provides a filtered view of market dynamics, helping traders front-run volatility spikes.

Settings

Momentum Settings

• Underlying Momentum Oscillator Length: Determines the lookback period for the primary momentum calculation.
• Swing Momentum Oscillator Length: Sets the length for the z-score normalization used in short-term swing detection.

Squeeze Settings

• Squeeze Calculation Period: The lookback period for ATR and volatility calculations.
• Squeeze Smoothing Length: Controls the smoothing applied to the Squeeze Value.
• Squeeze Detection Length: The EMA length used to determine the squeeze baseline state.
• Hyper Squeeze Detection Length: The period used to detect the rapid contraction in volatility required for a Hyper Squeeze signal.

Divergence Settings

• Divergence Pivot Detection Length: Adjusts the sensitivity of pivot detection; larger values find major turns, while smaller values find short-term shifts.
• Divergence Pivot Confirmation Length: The number of bars to wait for confirmation before plotting a divergence.
• Plot Bullish/Bearish Divergences: Toggles the visibility of divergence labels.

FAQ

How do I interpret the Hyper Squeeze signal?

The Hyper Squeeze signal (yellow dots/line) indicates that the market is in an exceptionally tight consolidation. Traders often look for a momentum shift (color change in the oscillator) immediately following this signal to enter a trade in the direction of the new expansion.

What is the difference between the two momentum lines?

The filled area represents the Underlying Momentum, which is better for identifying the overall trend direction. The thin blue line is the Swing Momentum (z-score), which is more sensitive and used for identifying divergences and short-term exhaustion.

How can I get access to this tool?

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