Markets are always going higher or lower—however, a third state known as consolidation denotes the start of a new trend. The TTM Squeeze indicator aids in determining the trend earlier. It is a popular haven for investors that uses zero line and momentum indicators to indicate changes in stock price over time. It can assist you in making trading judgments and avoiding purchasing a sinking stock.
John Carter of Trade the Markets (now Simpler Trading) developed the TTM Squeeze Indicator. Many well-known charting software platforms currently use it.
TTM indicator not only pinpoints the moment when you can expect a “greater than expected move,” but it also performs well and compliments many other indicators and technical tools. “In short, it’s my favorite,” Carter remarked.
There are numerous methods to use the TTM Squeeze Indicator in your trading, and we’ll go over a couple of them below, but first, an explanation of the indicator itself!
What is the TTM Squeeze Indicator?
The TTM Squeeze indicator is a volatility and momentum indicator developed by John Carter that capitalizes on the price’s tendency to change strongly after consolidating in a compact trading range. Here is how it looks on the chart.
The indicator’s volatility component gauges price compression by applying Keltner Channels and Bollinger Bands. When the Bollinger bands are completely contained within the Keltner channels, the indicator shows a period of extremely low volatility. The term squeeze describes this situation. When the Bollinger bands expand and return outside of the Keltner channel, the squeeze is said to have “fired” – volatility increases and prices may break out of that compact trading range in a specific direction.
The squeeze’s on/off state is shown by tiny dots on the indicator’s zero line. The red dot indicates that the squeeze is on, while the green dot indicates that the squeeze is off.
A momentum oscillator is also used by the TTM Squeeze indicator to highlight the expected direction of movement when the squeeze fires. This TTM squeeze histogram fluctuates around the zero line where a growing momentum above the zero line indicates a possibility to buy long while decreasing momentum below the zero line suggests a shorting possibility.
The TTM squeeze gives traders crucial information, but nothing is always 100% definite in trading. It performs best when combined with other indicators and trading tools.
TTM Squeeze Indicator Explained
The TTM Squeeze is based on the assumption that lower prices eventually translate to higher prices. If we can predict when the market will be particularly agitated, we can prepare ourselves to gain from a potentially big move in one direction.
The Squeeze indicator is made up of three elements. The first two indicators are Bollinger Bands and Keltner Channels, which set off the corresponding colors. Squeezing takes place when Bollinger Bands (blue in the above image) move inside the Keltner Channel (red in above). The red dots of the TTM Squeeze indicator are going to cross the zero line during this period of market tightening.
The squeeze will be regarded to have “fired” if the Bollinger Bands expand and push back past the Keltner Channel, and the dots become GREEN. When volatility is low, Bollinger bands compress and move within Keltner Channels.
According to experts, the best time to enter a trade is following the appearance of the green dot at the zero line; this provides considerable volatility and a chance to profit. If the stock is gaining momentum, you should buy; otherwise, shorting might be a better idea.
The same momentum normally lasts approximately 10 dots, and if you see a noticeable squeeze, it’s time to exit the trade. Experts recommend that traders wait for approximately two red dots to emerge before making an exit decision.
Each stock follows a cyclic pattern; the dot sequence will repeat once the momentum shifts.
The lifespan of a cycle can vary, and the size of a negative charge can occasionally be greater than a positive charge and vice versa. The color of the dots shows the strength of the shift, and you may employ it to determine the threshold of your decision.
Traders frequently use the TTM indicator across various periods to validate their insights; if both timeframes display the first green dot, it could be a powerful indication that traders should attempt to capitalize on.
What Do the Colors on the TTM Squeeze Mean?
The TTM Squeeze momentum indicator is displayed by red and green dots on the zero line. A red dot signifies that there is a squeezing situation. If there isn’t a red dot, we aren’t currently in a limited place. The squeeze is complete when a green dot comes after a series of red dots.
Momentum can be represented statistically in the histogram. When the histogram is rising, it will be cyan/light blue or yellow. If momentum is fading, the histogram will turn scarlet or dark blue.
Trading with the TTM Squeeze Indicator
TTM Squeeze indicator can be used to trade pullbacks or consolidation breakouts. When you see it on the charts, it looks quite similar to the MACD and performs similar duties. Let’s have a look at the indicator’s settings:
You can modify the values of Bollinger or Keltner in the settings. However, the default settings can be used with ease. Only change the settings if you understand what you’re doing and enjoy experimenting with technical indicators. We believe the default settings have been configured that way for a reason. As a result, they should be followed more often than not. Lower settings will result in more signals but will most likely reduce dependability.
The indicator incorporates both volatility and momentum. The Squeeze dots indicate whether trading circumstances are favorable for buying or selling. The motion histogram indicates when to go long (purchase) or short (sell). The histogram’s function is to determine the direction of the trade.
You can enter a long trade if the momentum rises over the zero line, Similarly, look for a short trade when momentum falls below the zero line. Typically, a price swing lasts 8 to 10 bars. When the histogram switches its direction, it hovers near the zero line. This is the moment to look for a reversal trade opportunity.
The momentum histogram may be employed to identify precise exit points. Carter suggests selling after you have had two bars in the new color. Thus, if the squeeze fires and the bars have a light blue color (above the zero line and rising), he advises selling when two dark blue bars (above the zero line and declining) appear in a sequence.
TTM Squeeze Indicator Buy Setup
Let’s take a look at TTM Squeeze’s buying setup.
- Watch for the histogram bars to change from red to green.
- The color of the squeeze dots should change from blue to magenta.
- A bullish candle should close the price.
- You might then enter a long trade.
- You might position your stop-loss order around the most recent swing lows.
- You could maintain a take profit that is at least twofold your stop-loss.
TTM Squeeze Indicator Sell Setup
Let’s have a look at TTM Squeeze’s sell setup.
- Watch for the histogram bars to change from green to red.
- The color of the squeeze dots should change from blue to magenta.
- A bearish candle should close the price.
- You might then enter a short trade.
- You might position your stop-loss order around the most recent swing lows.
- You could maintain a take profit that is at least twofold your stop-loss.
Conclusion
The TTM Squeeze indicator considers both volatility and momentum to assist traders in profiting from swings in the volatility of the security. Squeeze dots, which are parts of the indicator’s volatility portion, indicate potential breakouts after a period of calm trading. The momentum histogram depicts the most likely course of the breakout and can be used to locate potential exits.
Gaining exposure to the TTM Squeeze momentum indicator will provide you with a more in-depth understanding of the market’s present state and likely future trajectory. Traders should use the TTM Squeeze indication together with other indicators, such as Swing Indicators or Gann Indicators, as well as other types of analysis, as with any other indicator.
