Technical Indicators & Analysis

TTM Squeeze Indicator: A Powerful Tool for Spotting Breakouts

May 21, 2025 Comments Off on TTM Squeeze Indicator: A Powerful Tool for Spotting Breakouts

The TTM Squeeze Indicator is a momentum and volatility-based trading tool that helps traders identify potential breakout opportunities. Developed by John Carter, this indicator detects periods of low volatility (squeeze) and signals when price movements are likely to expand. It is widely used in stock, forex, and options trading.

How the TTM Squeeze Indicator Works

The TTM Squeeze Indicator is based on the relationship between Bollinger Bands and Keltner Channels:

  • A squeeze occurs when Bollinger Bands contract inside the Keltner Channels, indicating low volatility. This suggests the market is consolidating and preparing for a breakout.
  • A release happens when the Bollinger Bands expand beyond the Keltner Channels, signaling a breakout in either direction.

The indicator also includes a momentum histogram, which helps determine whether the breakout is likely to be bullish or bearish.

How to Use the TTM Squeeze Indicator in Trading

1. Identifying a Squeeze

  • When the indicator shows red dots, the market is in a squeeze, meaning volatility is low.
  • This is a signal to prepare for a potential strong move once the squeeze is released.

2. Breakout Confirmation

  • When the red dots turn green, it indicates that the squeeze has ended and volatility is expanding.
  • Traders look at the momentum histogram to determine the likely direction of the breakout:
    • Positive momentum (rising histogram bars): Signals a bullish breakout.
    • Negative momentum (falling histogram bars): Signals a bearish breakdown.

3. Entering and Exiting Trades

  • Buy Signal: Enter a long position when the squeeze is released, and momentum is positive.
  • Sell Signal: Enter a short position when the squeeze is released, and momentum is negative.
  • Exit Strategy: Consider closing the trade when momentum starts to weaken or when the price reaches a key resistance/support level.

Advantages of the TTM Squeeze Indicator

✔ Helps traders anticipate big moves rather than react to them.
✔ Works well in both trending and ranging markets.
✔ Can be used across different timeframes for intraday, swing, or long-term trading.
✔ Provides clear entry and exit signals based on volatility and momentum.

Conclusion

The TTM Squeeze Indicator is a valuable tool for traders looking to capitalize on breakout opportunities. By combining volatility contraction with momentum analysis, it helps identify high-probability trading setups. However, like all indicators, it should be used alongside other technical tools and risk management strategies to maximize effectiveness.