TTM Squeeze: How To Use It For Profitable Trading?

What Is the TTM Squeeze Indicator?

The TTM Squeeze indicator is a volatility and momentum tool that helps traders identify periods when the market is about to break out of a calm, consolidating phase.

Developed by John Carter, this indicator combines elements of Bollinger Bands and Keltner Channels to highlight potential trading opportunities.

When the TTM Squeeze "fires," it signals that the market will likely experience a significant price movement, making it a valuable tool for traders seeking to profit from these shifts.

Components of the TTM Squeeze

The TTM Squeeze comprises several key components:

1. Bollinger Bands: These bands measure market volatility and consist of an upper and lower band around a moving average.

2. Keltner Channels: These channels also measure volatility but are based on the Average True Range (ATR), which smooths out price fluctuations.

3. Histogram: The histogram indicates the momentum and direction of the squeeze. When the histogram is red, the market is in a squeeze. When it turns green, the squeeze has "fired," signaling a potential breakout.

How the TTM Squeeze Works

The TTM Squeeze operates by pinpointing periods of low volatility. During these periods, the market is essentially in a consolidation phase, preparing for a significant move.

The TTM Squeeze identifies these moments by observing the relationship between Bollinger Bands and Keltner Channels.

When the Bollinger Bands, which measure market volatility by indicating how much price deviates from a simple moving average, contract inside the Keltner Channels, which measure volatility based on the Average True Range (ATR), a "squeeze" condition is identified.

This squeeze condition signals that the market is experiencing reduced volatility and is consolidating.

The histogram of the TTM Squeeze plays a crucial role here.

When the histogram is red, it indicates that the market is in a squeeze, a period of low volatility where price movements are subdued.

When the histogram turns green, it signifies that the squeeze has "fired," suggesting that the market will likely break out of its consolidation phase and move significantly in one direction.

Setting Up the TTM Squeeze Indicator

To set up the TTM Squeeze indicator, follow these steps:

1. Choose a Trading Platform: Select a platform that supports the TTM Squeeze, such as Thinkorswim, TradingView, or MetaTrader.

2. Add the Indicator to Your Charts: Navigate to your platform's indicator library and add the TTM Squeeze to your chart.

3. Customize the Settings: You can adjust the settings based on your trading style. Common settings include a 20-period Bollinger Band and a 1.5 multiplier for the Keltner Channels.

Identifying Trading Signals with the TTM Squeeze

Recognizing trading signals with the TTM Squeeze involves:

1. Identifying Squeeze Conditions: Look for periods when the Bollinger Bands contract inside the Keltner Channels, indicating a squeeze.

2. Interpreting Histogram Colors: Pay attention to the histogram colors. Red indicates a squeeze, while green signals that the squeeze has fired and a breakout is likely.

3. Confirming Breakouts: Use additional indicators like volume or trend lines to confirm the breakout and enhance your trading decisions.

Developing Profitable Trading Strategies

Developing profitable trading strategies with the TTM Squeeze involves leveraging the indicator's ability to signal potential breakouts and market movements.

Trend Following Strategy

A trend-following strategy using the TTM Squeeze focuses on entering trades in the direction of the prevailing trend.

The TTM Squeeze can help identify continuation patterns when the market is trending.

First, identify the trend using a moving average or trend lines to determine the market's overall direction. Then, monitor the TTM Squeeze indicator for a squeeze condition, indicated by the Bollinger Bands contracting inside the Keltner Channels and the histogram turning red.

When the histogram turns green and the squeeze fires in the direction of the trend, enter the trade.

This suggests the trend is likely to continue. Place stop-loss orders below recent support levels (for uptrends) or above recent resistance levels (for downtrends).

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Reversal Strategy

The reversal strategy aims to identify potential market reversals using the TTM Squeeze.

Start by identifying overbought or oversold conditions using indicators like RSI or stochastics.

Then, watch for the TTM Squeeze to indicate a squeeze condition in these overextended areas.

When the squeeze fires in the opposite direction of the prevailing trend (histogram turns green), enter the trade, anticipating a reversal.

Place stop-loss orders above the recent highs (for short positions) or below the recent lows (for long positions).

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Range-Bound Trading Strategy

In range-bound markets, the TTM Squeeze can help identify breakouts from established support and resistance levels.

Begin by determining the range by identifying key support and resistance levels where the price has consistently bounced.

Look for the TTM Squeeze to signal periods of low volatility within the range.

When the squeeze condition exists:

• Enter long trades near support levels

• Enter short trades near resistance levels, expecting the price to revert to the mean.

TTM Squeeze vs. Bollinger Bands

The TTM Squeeze and Bollinger Bands both measure market volatility, but the TTM Squeeze offers enhanced insights by combining Bollinger Bands with Keltner Channels.

Bollinger Bands plot two standard deviations above and below a simple moving average, expanding during high volatility and contracting during low volatility.

They are useful for identifying overbought or oversold conditions and potential breakouts.

The TTM Squeeze identifies periods of low volatility, or "squeeze" conditions, when Bollinger Bands contract inside the Keltner Channels.

This signals that the market is consolidating and suspended for a significant move. When the squeeze "fires," indicated by the histogram changing color, it suggests a breakout is coming.

TTM Squeeze vs. RSI (Relative Strength Index)

The TTM Squeeze and RSI (Relative Strength Index) are both valuable technical indicators but serve different purposes.

The RSI measures momentum and identifies overbought and oversold conditions. It ranges from 0 to 100, with readings above 70 indicating overbought conditions and below 30 indicating oversold conditions.

Traders use RSI to gauge trend strength and spot potential reversals.

The TTM Squeeze, in contrast, focuses on volatility and potential breakouts. It combines Bollinger Bands and Keltner Channels to identify periods of low volatility or "squeeze" conditions, signaling that a significant price movement is likely.

Conclusion

In short, the TTM Squeeze trading system identifies breakout opportunities and develops profitable trading strategies.

Understanding how to use the TTM Squeeze, setting up the indicator correctly, and recognizing key signals can enhance your trading performance. 

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