Squeeze Index

The Squeeze Index is designed to quantify the squeezing action of price, presented as a percentage. Higher percentages indicate a more intense level of compression, making it an essential tool for traders to assess potential breakout areas.

Key Configuration Settings for the Squeeze Index

• Convergence Factor: This is related to the convergence of exponential envelopes.
• Length: Determines the period of the indicator.
• Src: Source input of the indicator.

How to Trade with the Squeeze Index

When prices are described as being "squeezed," it implies they are compressed within a contracting range. This constriction typically signals a phase of little movement (stationarity). The subsequent breakout from this narrow range often reveals the direction for potential buy or sell opportunities.

Insights on Settings

The settings, particularly the convergence factor and length, significantly influence the indicator's values. A convergence factor exceeding the length will identify more areas of price compression, while a longer period than the convergence factor will detect fewer such areas.

It's advisable to either synchronize the convergence factor with the period setting or to use a convergence factor that is double the period for better results.

The image above utilizes a convergence factor of 100 alongside a period of 10.

Owing to the calculation approach, sometimes retracements might mistakenly appear as squeezed price actions. This occurs more prominently with higher convergence factors.

Technical Details

To effectively gauge the squeezing of price within a confined range, we consider damping, a process where the amplitude of oscillations in a system diminishes over time. By approximating the envelopes of a damped system, the difference between the upper and lower boundaries of these envelopes offers a diminishing value series.

This methodology is applied here. Initially, the disparity between the extremities of the exponential envelopes is calculated. Due to the exponential convergence of these extremities towards the input, their logarithm is taken. The correlation oscillator is subsequently employed to achieve a scaled metric.

Frequently Asked Questions (FAQ)

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

What does a high Squeeze Index value indicate?
A high value suggests a significant degree of price compression, pointing towards a potential breakout scenario.