The TTM Squeeze indicator is a powerful tool used in technical analysis to identify periods of low volatility followed by potential explosive moves in the stock market. Developed by John Carter, the TTM Squeeze indicator helps traders spot trading opportunities by highlighting the contraction and expansion of Bollinger Bands.
Understanding the TTM Squeeze Indicator
The TTM Squeeze indicator is based on the concept that periods of low volatility are often followed by periods of high volatility. The indicator combines Bollinger Bands, which represent volatility, and Keltner Channels, which represent price range and average true range. When the Bollinger Bands contract within the Keltner Channels, it suggests that the market is in a state of low volatility, indicating a potential upcoming price breakout.
Interpreting the TTM Squeeze Indicator
The TTM Squeeze indicator provides several signals to traders:
1. Squeeze Signal
When the Bollinger Bands move inside the Keltner Channels, it indicates a squeeze signal. This means that volatility is contracting, and the market is in a period of low volatility. Traders interpret this as a calm before a potential storm, as the market tends to make explosive moves following periods of low volatility. The squeeze signal suggests that a significant price breakout may occur soon, and traders should be prepared for potential trading opportunities.
2. Momentum Confirmation
The TTM Squeeze indicator also provides momentum confirmation signals. These signals occur when the histogram, located below the price chart, changes color. A green histogram indicates bullish momentum, while a red histogram indicates bearish momentum. Traders can use these signals as an additional confirmation to support their trading decisions based on the squeeze signal.
3. Release Signal
After the squeeze signal, when the Bollinger Bands expand and move outside the Keltner Channels, it indicates a release signal. This signifies that volatility is increasing, and the market is entering a period of high volatility. Traders can expect potential price breakouts and increased trading opportunities during this phase.
Using the TTM Squeeze Indicator
Here are some practical tips on how to use the TTM Squeeze indicator in your stock market analysis:
1. Identifying Squeeze Patterns
Monitor the Bollinger Bands and Keltner Channels for squeeze patterns. When the Bollinger Bands move inside the Keltner Channels, it suggests a period of low volatility. This is an opportunity for traders to prepare for potential price breakouts. Take note of the duration of the squeeze and watch for the release signal.
2. Confirming with Momentum Signals
Pay attention to the histogram below the price chart. The change in color indicates bullish or bearish momentum. Use this as a confirmation signal to support your trading decisions based on the squeeze pattern. If the histogram turns green, it confirms bullish momentum, and if it turns red, it confirms bearish momentum.
3. Timing Your Trades
Once the squeeze pattern is identified and the release signal occurs, it’s time to consider potential trading opportunities. Look for price breakouts or reversals that align with your trading strategy. Use other technical analysis tools, such as support and resistance levels or candlestick patterns, to further refine your entry and exit points.
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By Astrobulls Research Pvt Ltd