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How to Trade the TTM Squeeze Indicator

One of the most widely used indicators amongst both retail and professional traders alike is the TTM Squeeze™ indicator. The TTM Squeeze™ Indicator contains both volatility and momentum components which traders can use to help gauge when and how price might break away from a tight trading range. There are many ways to utilize the TTM Squeeze™ Indicator in your trading and we’ll dig into a few of those ways below, but first, a breakdown of the indicator itself!

Note: On the TrendSpider platform, the TTM Squeeze™ indicator is titled “BB/KC Squeeze”.

What Is The TTM Squeeze™ Indicator Identifying?

As mentioned in the opening, the TTM Squeeze™  indicator contains both volatility and momentum components. The volatility component is measured using the Bollinger Bands and Keltner Channels. When the Bollinger Bands are inside the Keltner Channels, an asset is said to be ‘in a squeeze.’ This occurs during low volatility periods when price is consolidating.

This is an image of the Bollinger Bands and Keltner Channels in a squeeze

When the Keltner Channels are inside of the Bollinger Bands, the squeeze is said to have ‘fired,’ and this occurs during higher volatility periods.

This is an image of the Keltner Channel and Bollinger Bands not in a squeeze

The move of the Bollinger Bands from inside to outside of the Keltner Channels is the key moment here, as this move can lead to powerful price breakouts, both to the upside and to the downside. To determine the expected direction of the move, traders will utilize the ‘Momentum’ component of the TTM Squeeze™ indicator, the oscillator. The oscillator is depicted via vertical histogram bars that oscillate around a zero line. If a squeeze fires and the oscillating histogram bars are increasing above the zero line, that suggests an opportunity to go long. An example of this can be pictured in the chart below.

This is an image of a squeeze setup breaking to the upside

If a squeeze fires and momentum is falling below the zero line, that suggests an opportunity to go short.

This is an image of a squeeze setup breaking to the downside

Finally, the zero line contains both red and green dots. The red dot is seen when price is squeezing (The Bollinger Bands are inside the Keltner Channels), and a green dot is seen when the squeeze is firing (the Bollinger Bands are outside the Keltner Channels).

Trading A TTM™ Squeeze

Now that we understand exactly what is happening during a TTM squeeze™, the next step is to learn how to make trades based on it. Though it is known that the TTM Squeeze™ indicator can give a powerful signal as to where price is headed, trades with the highest probability of success tend to occur when multiple indicators are all flashing the same signal. Below, we’ll go over a few setups a trader can look for to give additional confirmation to their TTM squeeze™.

1. TTM Squeeze™ With Divergence

One way that the TTM Squeeze™ indicator can be traded is by using divergence. Divergence is when the histogram momentum bars begin to slope toward or away from the “zero line” and price moves in the opposite direction. Bearish divergence is when price is making higher highs, but the slope of the histogram is making lower highs on the positive side of the “zero line”.

This is an image of bearish divergence between the BB/KC and price.

The inverse of this would be bullish divergence. A bullish divergence occurs when price is making lower lows, but the histogram is sloping upward, toward the “zero line” from the negative side of the line.

This is an image of bullish divergence between the BB/KC and price.

So when do we take the trade? Some traders like to buy on the trend line break. Others prefer to wait on the retest of the trend line after the break. Still others require confirmation from a separate indicator, like a moving average. There is not necessarily a right or a wrong way, so long as risk is defined ahead of the trade.

You’ve made it halfway. You deserve a reward!

2. TTM Squeeze™ With Moving Averages

Like any other technical indicator, the TTM squeeze™ is no magic bullet and is best used with other indicators as a confirmation of price direction and momentum. There are varying schools of thought as to which moving averages are best to use, but generally speaking, a short, medium, and long period in tandem provide a well rounded picture of general trend strength and direction.

In order to utilize moving averages with our TTM squeeze™ indicator, we’ll be looking for instances in which price has both deviated away from its moving averages and a squeeze has fired, or red dot has turned to green. Because price always seeks to return to its average over time, and with greater probability as it deviates away, we can use the histogram to give us an idea of when price is stretched too far. Once it peaks and begins to retrace, we note the same behavior on the moving averages.

This is an image of the BB/KC and moving averages working in tandem.

Scanning For A TTM Squeeze™

Now that a clear overview of the mechanics of the TTM Squeeze™ indicator has been laid out, let’s take a look at how to put it to use within TrendSpider’s Market Scanner. There are many different sets of conditions a trader might be looking for, and we’ll highlight a few different options in the examples below.

1. Histogram flip

If you’re looking for stocks whose histograms are crossing the zero line, either flipping from red to green or green to red, you’ll be able to find them using the ‘BB/KC Squeeze, Squeeze’ indicator in the market scanner. For a red to green flip, you’ll want to define it as having ‘crossed up’ on a ‘constant level’ of zero. The constant level is the zero line. Do note that if you’re looking for the opposite of this idea, you can simply utilize the ‘Crossed down’ prompt.

This is an image of how to script a histogram flip.

2. Green to red or red to green dot flip

In order to search for dot flips, we’ll utilize the ‘BB/KC Squeeze, Signal’ indicator.  For a red to green flip, we’ll define the ‘BB/KC Squeeze, Signal’ as having ‘Crossed up’ on a ‘Constant level’ of ‘0’. Again, just like in the above idea, if you’re looking for the reverse, you’ll utilize the ‘Crossed down’ prompt.

This is an image of how to script a dot flip.

3. Using ‘Squeeze’ and ‘Signal’ in tandem

For some traders, seeing the signal change and the histogram flip at the same time is vital. For those who are interested in scanning for that particular setup, we’ve added this link to a scanner that you can load and save into your account to use at any time! There are a few additional ‘shared’ scanner templates that look for TTM squeeze™ conditions that are available for all of our users in the shared scanners list on the far left-hand side of your market scanner. If you type in ‘squeeze’ in the search bar at the top of the list, you’ll see all of the available options.

This is an image of various prewritten squeeze setups in the scanner.

Looking for an expert approach to utilizing the TTM Squeeze™ in your trading? If so, check out this video with our good friend, Peter Hegedus. In this video, he provides some insights into how he uses it within his trading methodology!

How to trade the TTM Squeeze Indicator with Peter Hegedus