Optimizing The TTM Squeeze Indicator For Strategic Breakout Trades

Deepvue
Deepvue

September 30, 2024

8 min read
1665 views

To simplify identifying periods of low volatility, the TTM Squeeze Indicator combines multiple technical analysis tools into one easy-to-read oscillator. Discover how the TTM Squeeze indicator shows price consolidation and provides ideal trading opportunities during low volatility.

Why Price Tightness Matters for Momentum Traders

Price tightness is a crucial signal for momentum traders because it indicates a phase of low volatility where a stock is “building energy” before making a big move. During periods of consolidation, a stock’s price trades within a narrow range, reflecting indecision in the market.

Many Trading Strategies rely on price consolidation as part of their edge. Tight price ranges offer a straightforward method for deciding when to enter a trade: Long above the range or short below the range.

For traders, this tightness reduces risk, offering clear entry and exit points.

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When the price eventually breaks out of this tight range, it often results in a momentum burst, creating an opportunity for significant gains. By focusing on price tightness, traders can prepare to catch the breakout while controlling downside risk.

What is the TTM Squeeze Indicator?

The TTM Squeeze Indicator combines elements of price volatility and direction to help traders identify potential breakouts and momentum shifts from periods of price contraction. It combines two powerful tools—Bollinger Bands and Keltner Channels—to pinpoint when a stock’s price is trading within a tight range.

Bollinger Bands measure price volatility by plotting bands around a moving average. Keltner Channels use average true range (ATR) to identify price ranges.

The different calculations on both volatility measurement tools provide individual trading approaches, but when used together offer a precise indicator that pinpoints tightness in price. A Squeeze occurs when the Bollinger Bands move inside the Keltner Channels.

The TTM Squeeze simplifies this process by visualizing these conditions on a histogram. It highlights when the market is consolidating, making it easier for traders to anticipate potential breakouts.

How to Interpret TTM Squeeze Indicator?

The Squeeze trigger is displayed as a series of dots along the center of the histogram. Red Dots signal the squeeze, while green dots show momentum.

When the price is trending above the Bollinger Band Moving Average, you will observe the histogram positioned above the zero indicating increasing or decreasing positive momentum.

Conversely, when the price is trending below the Bollinger Band Moving Average, you will observe the histogram positioned below the zero and also indicating increasing or decreasing negative momentum.

TTM Squeeze Indicator

Using the TTM Squeeze for a Buying Strategy

The Buying Strategy involves waiting for the stock to form a tight trading range during an increasing momentum phase after the stock has displayed positive price action, found support, and is trending higher.

As the momentum oscillator moves above the zero line, look for an opportunity when the Squeeze is triggering (red dots). Price is tightening significantly when the Bollinger Bands are inside the Keltner Channels.

Begin focusing on price action when the squeeze triggers and momentum increases from negative to positive.

The TTM Squeeze is plotted at the bottom of your charts as a simple oscillator allowing you to focus on price action without overcrowding your visual analysis.

Symbol: CAVA
Company:
CAVA Group
Year: 2024
Indicator: TTM Squeeze

TTM Squeeze

In an effort to focus on price levels, the TTM squeeze negates the need to plot both Bollinger Bands and Keltner Channels. The chart above displays the TTM Squeeze Indicator while the same chart below has both volatility measurement tools.

Symbol: CAVA
Company:
CAVA Group
Year: 2024
Indicators: Bollinger Bands (Blue) & Keltner Channels (Orange)

Optimizing The TTM Squeeze Indicator For Strategic Breakout Trades

Compare the charts and note when the Bollinger Bands are inside the Keltner Channels. The buy signal for CAVA occurred on a gap-up when the price expanded above a tight trading range.

Tight vs. Loose Squeeze: Analyzing Degrees of Price Contraction

In addition, Deepvue’s TTM Squeeze Indicator indicated Tight, Medium, and Loose Squeezes. By using different Keltner Channel Multipliers, you can quickly analyze the tightness of the price action.

Optimizing The TTM Squeeze Indicator For Strategic Breakout Trades

Observing TSLA’s price movement off of its most recent low, you’ll notice how the degree of tightness changes with the adjustment of the Keltner Channels’ multipliers.

Symbol: TSLA
Company:
Tesla, Inc.
Date: June, 2024
Keltner Channel Multiplier: 1

Optimizing The TTM Squeeze Indicator For Strategic Breakout Trades

Keltner Channel Multiplier: 1.5

Optimizing The TTM Squeeze Indicator For Strategic Breakout Trades


Keltner Channel Multiplier: 2

Optimizing The TTM Squeeze Indicator For Strategic Breakout Trades

When integrating the TTM Squeeze into your strategy, modify the inputs to better suit your individual trading style. Just as you would change the Bollinger Bands and Keltner Channels Length and Multiplier, the TTM Squeeze Indicator can be modified to suit your needs.

Real Examples: How The TTM Squeeze Signals Breakout Opportunities

Symbol: NVDA
Company:
Nvidia Corp
Timeframe: 30 Min
Date: May 13, 2024

Optimizing The TTM Squeeze Indicator For Strategic Breakout Trades

In the Spring of 2024, NVDA was forming a Cup and Handle basing formation after a 100% price advance. When looking at a 30-minute chart, the TTM Squeeze indicator signaled a buy as the price tightened in the handle on the daily chart.

Symbol: PLTR
Company:
Palantir
Year: 2024

TTM Squeeze

Growth stocks can be difficult to trade due to their volatile nature. The TTM Squeeze clearly displayed PLTR exhibiting tight price action before quick 40-50% price advances.

Symbol: NOW
Company:
SERVICENOW, INC
Date: October 2024

TTM Squeeze

The ideal entry for large price moves occurs at the end of every basing formation. As a base matures over time, look for volatility to decrease and a tightness of price to form.

Adding TTM Squeeze Indicator To Your Charts

Search for TTM Squeeze in the Indicators & Strategies menu.

TTM Squeeze Indicator

By default, the TTM Squeeze Indicator is placed on a new lower pane on your charts.

Optimizing The TTM Squeeze Indicator For Strategic Breakout Trades

In the settings, you change the value of the input as well as any styling. The TTM Squeeze indicator can be used in any time frame.

Optimizing The TTM Squeeze Indicator For Strategic Breakout Trades

Look for an Orange or Red Dot to signal a squeeze after the price begins to see positive action off the lows. Wait for a price contraction to set up a tight area where you can control risk and look for a continuation of the trend when the price expands out of the contraction.

Key Takeaways: How The TTM Squeeze Indicator Improves Trading Decisions

Before a substantial price advance, there is a period of price consolidation. The TTM Squeeze indicator helps traders capitalize on market momentum while identifying tight price areas before a big move.

The TTM Squeeze indicator combines Bollinger Bands and Keltner Channels into one easy-to-read tool, reducing chart clutter.

Within any time frame, when the Bollinger Bands contract inside the Keltner Channels a TTM Squeeze is signaled. During the squeeze, the stock builds energy, and then sees a significant momentum-driven trend when the price breaks out through the range.

  • Look for Consolidation: Wait for a stock to form a tight trading range, with the histogram showing red dots. This signals that the price is in a squeeze.
  • Watch Momentum: Confirm that momentum is shifting in the desired direction. If the histogram is above zero, it indicates bullish momentum; if below, bearish momentum.
  • Enter on Breakout: Enter the trade when the price breaks out of the consolidation range, and the dots turn green, confirming the momentum shift.

This strategy works best in trending markets, where stocks that consolidate and then break out often continue moving strongly in the breakout direction. Use logical stop losses just below the consolidation range to manage risk.

With the TTM Squeeze, you can confidently identify and capitalize on momentum-driven breakouts while managing risk effectively.

Frequently asked questions

The TTM Squeeze Indicator identifies periods of low price volatility, signaling when a stock is consolidating within a tight range. This tightness often leads to breakouts, offering traders a chance to capitalize on momentum-driven price moves. By combining Bollinger Bands and Keltner Channels into one tool, it simplifies chart analysis and helps traders spot ideal entry and exit points.

The indicator uses a histogram to show a “squeeze” when Bollinger Bands contract inside the Keltner Channels. Red dots on the histogram signal consolidation (a squeeze), while green dots indicate a breakout. Momentum shifts are shown by the histogram’s position relative to the zero line: above zero for bullish momentum and below zero for bearish momentum.

To use the TTM Squeeze for buying:

  • Wait for red dots on the histogram, signaling tight price consolidation.
  • Confirm momentum is shifting to the upside, with the histogram moving above zero.
  • Enter the trade when the price breaks out of the tight range, ideally accompanied by green dots confirming the momentum shift.

Tight, medium, and loose squeezes reflect the degree of price contraction based on the Keltner Channel multiplier settings. A tight squeeze (narrow Bollinger Bands inside Keltner Channels) signals strong consolidation, offering high potential for a big breakout. Medium and loose squeezes show less contraction and may indicate weaker momentum when the price breaks out.

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