Squeeze Momentum Indicator

The Squeeze Momentum Indicator tool provides a comprehensive volatility and momentum analysis framework designed to identify periods of consolidation and potential explosive market breakouts.

Usage

The Squeeze Momentum Indicator is used to identify "Squeezes"—periods where market volatility drops significantly—and the subsequent "Release" when volatility expands. Traders typically use the indicator to time entries during these shifts in market regimes.

• Squeeze Detection: When the Bollinger Bands trade inside the Keltner Channels, the market is in a "Squeeze." This is visualized by black crosses (or the chart's foreground color) on the midline, indicating low volatility and potential energy buildup.
• Squeeze Release: When the Bollinger Bands move outside the Keltner Channels, the squeeze "fires" or releases. This is visualized by gray crosses on the midline.
• Directional Bias: The histogram represents directional momentum. A value above zero indicates bullish momentum, while a value below zero indicates bearish momentum. Bright colors represent increasing momentum (acceleration), while darker colors represent decelerating momentum.
• Entry/Exit Strategy: A common approach involves waiting for the first "Release" cross after a squeeze period. If the histogram is above zero at the time of release, it signals a potential long entry. Conversely, if it is below zero, it signals a potential short. Positions are often held until the histogram color changes, indicating a peak in momentum.

Details

This script is a derivative of John Carter's "TTM Squeeze" volatility indicator as described in his book Mastering the Trade. While the core logic focuses on the relationship between Bollinger Bands and Keltner Channels, this specific implementation by LazyBear utilizes a Linear Regression-based method for calculating the momentum histogram rather than a simple momentum oscillator.

The "Squeeze" condition is mathematically defined as:

• Squeeze On: Bollinger Band Upper < Keltner Channel Upper AND Bollinger Band Lower > Keltner Channel Lower.
• Squeeze Off: The inverse, where volatility has expanded beyond the Keltner Channels.

The momentum histogram is calculated using the linear regression of the price relative to the average of the high/low range and the moving average, providing a smoothed view of price velocity.

Settings

• BB Length: Sets the lookback period for the Bollinger Bands calculation.
• BB MultFactor: Adjusts the standard deviation multiplier for the Bollinger Bands, determining their width.
• KC Length: Sets the lookback period for the Keltner Channels.
• KC MultFactor: Adjusts the multiplier applied to the range (ATR or High-Low) to determine the Keltner Channel width.
• Use TrueRange (KC): A toggle to decide whether the Keltner Channels use True Range (including gaps) or a simple High-Low range for volatility calculations.

FAQ

How do I interpret the midline crosses? The midline crosses indicate the volatility state. A cross in the chart's foreground color (black/white) means the market is in a squeeze (low volatility), while a faded/gray cross indicates the squeeze has been released (rising volatility).

What does the histogram color change signify? Bright green or bright red bars indicate that momentum is strengthening in that direction. Faded green or faded red bars indicate that while the trend direction remains the same, the strength of that momentum is beginning to wane.

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