TTM Squeeze Indicator: What Is It and How to Use

The TTM Squeeze Indicator is a newer volatility and momentum indicator that helps traders identify market direction and potential breakouts. Created by John Carter of Simpler Trading, this tool combines Bollinger Bands® and Keltner Channels to gauge the strength of market trends. If you’re looking to add a powerful tool to your trading arsenal, understanding the TTM Squeeze is a must.

This article will break down what the TTM Squeeze is, how to use it to identify market breakouts, and how it compares to other indicators.

I’ll answer the following questions:

1. What is the TTM Squeeze indicator?
2. How does the TTM Squeeze indicator work?
3. How do you read the TTM Squeeze indicator on a chart?
4. What are the best trading strategies using the TTM Squeeze?
5. How does the TTM Squeeze compare to other technical indicators?
6. What is the best timeframe to use with the TTM Squeeze indicator?
7. How do you set up the TTM Squeeze indicator on popular trading platforms?
8. What additional indicators complement the TTM Squeeze for better trading decisions?

Let’s get to the content!

What Is the TTM Squeeze Indicator?

The TTM Squeeze Indicator is a technical analysis tool designed to help traders identify periods of low volatility that are likely to be followed by significant price movements. This indicator works by measuring the relationship between two other indicators: Bollinger Bands® and Keltner Channels. When the Bollinger Bands® contract inside the Keltner Channels, it indicates a “squeeze,” suggesting that the market is in a period of low volatility. When the bands move outside the channels, the squeeze is released, often leading to a breakout or a strong directional move.

This indicator is valuable because it alerts traders to potential trading opportunities before a significant price movement occurs. Whether you are trading stocks, ETFs, or derivative instruments, understanding the TTM Squeeze can enhance your ability to time entries and exits more effectively. In my experience, the TTM Squeeze Indicator is particularly useful in trending markets, where identifying moments of consolidation can lead to profitable trades once the trend resumes.

How Does TTM Squeeze Work?

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The TTM Squeeze works by plotting dots and a histogram on a chart. When the Bollinger Bands® are inside the Keltner Channels, the indicator signals a “squeeze” condition. A squeeze is a period of low volatility and is often followed by a significant market move. The color of the dots and histogram bars indicate the direction of the momentum.

How To Read the TTM Squeeze Indicator

Reading the TTM Squeeze Indicator involves paying attention to its key components: the squeeze dots and the histogram.

The squeeze dots, typically plotted on a zero line, indicate whether the market is in a squeeze (red dots) or not (green dots). When the dots turn green, it suggests that the squeeze has been released, and traders should prepare for a potential breakout.

The histogram, which oscillates above and below the zero line, indicates the momentum of the price movement. A rising histogram suggests increasing momentum, while a falling histogram indicates weakening momentum.

For traders, the key is to watch for the transition from red to green dots, signaling the end of a squeeze and the start of a potential strong price move. The histogram provides additional confirmation by showing the strength of the momentum behind the move. Combining these signals with other technical indicators, like moving averages or pivot points, can further enhance the accuracy of your trading decisions.

How To Trade the TTM Squeeze Indicator

Trading with the TTM Squeeze involves waiting for the indicator to signal a squeeze and then watching for the squeeze to fire. Once the dots turn green and the histogram bars also show a shift, that’s your cue to enter a trade. However, like anything in trading, there’s risk involved. Always use stop-loss orders and manage your risk carefully.

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How To Efficiently Use the TTM Squeeze Indicator

Efficiency in using the TTM Squeeze comes from practice and understanding its components. Use it in conjunction with other indicators and trading tools for best results. For example, you can use moving averages to confirm the direction of the potential breakout. Also, consider the timeframe; some traders find success using it on shorter time frames, while others prefer longer ones.

Mastering your trading psychology is crucial for efficient use of any indicator, including the TTM Squeeze. Understanding your emotional triggers can help you make more rational decisions, especially when the market is volatile. For tips on how to improve your trading psychology, check out this in-depth guide.

TTM Squeeze Indicator vs. Other Popular Technical Indicators

The TTM Squeeze is unique because it combines elements of both volatility and momentum to provide a more comprehensive view of the market.

Compared to Moving Average

The TTM Squeeze Indicator differs from the moving average in that it focuses on volatility rather than just trend direction. While moving averages smooth out price data to help identify trends, the TTM Squeeze highlights periods of low volatility that are often followed by significant price movements. The moving average is a lagging indicator, providing signals after the trend has already started, whereas the TTM Squeeze can alert traders to potential breakouts before they occur.

Using both indicators together can provide a more comprehensive view of the market. For example, a trader might use the TTM Squeeze to identify a potential breakout and then use a moving average crossover to confirm the trend direction. This combination allows for more informed trading decisions, especially in volatile market conditions where timing is critical.

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Compared to RSI

The Relative Strength Index (RSI) measures the speed and change of price movements to identify overbought or oversold conditions, whereas the TTM Squeeze Indicator focuses on volatility and momentum. While RSI is useful for spotting potential reversals within an existing trend, the TTM Squeeze is more effective in identifying when a market is about to make a strong directional move after a period of consolidation.

Traders often use RSI to determine the strength of a trend before entering or exiting a trade, while the TTM Squeeze helps pinpoint the timing of a potential breakout. By combining these two indicators, traders can better assess both the momentum and the likelihood of a significant price move, leading to more strategic entries and exits in their trades.

Charting with the TTM Squeeze Indicator

Charting with the TTM Squeeze is about more than just watching dots and bars. It’s about understanding the market’s energy. The squeeze condition shows you when the market is building energy, and the histogram bars help you gauge that energy’s direction. Platforms like Charles Schwab’s thinkorswim offer the TTM Squeeze as a built-in indicator, making it accessible for most traders.

How To Identify TTM Squeeze

Identifying a TTM Squeeze is all about watching for those red dots to turn green and the histogram bars to change direction. But don’t just jump in blindly. Confirm the signal with other indicators and maybe even a quick scan of market news. The more information you have, the better your trade setup will be.

It’s also worth exploring other indicators that can help you identify market direction and potential breakouts. Some traders use the concept of “outperform” to gauge stock performance. To understand what “outperform” means in stocks, you can read this article.

Benefits of Using the TTM Squeeze

The TTM Squeeze Indicator offers several benefits, particularly for traders looking to capitalize on significant price movements following periods of low volatility. One of the primary advantages is its ability to signal potential breakouts before they happen, giving traders a valuable head start. This early warning system can help traders position themselves before a major price move, increasing the potential for profit.

Another benefit is the indicator’s versatility across different markets and timeframes. Whether you’re trading stocks, ETFs, or derivatives, the TTM Squeeze can be applied effectively to identify trading opportunities. Additionally, its clear visual signals—red and green dots combined with a momentum histogram—make it easy to interpret, even for beginner traders. When used in conjunction with other indicators, the TTM Squeeze can significantly enhance your trading strategy by providing a more comprehensive analysis of market conditions.

Try a strategy like “selling the rip,” which involves selling a stock after a rapid upward movement. This strategy can be particularly useful when trading with the TTM Squeeze Indicator. For a deeper dive into the “sell the rip” strategy, here’s a comprehensive guide.

What Is the Best Timeframe for TTM Squeeze?

The best timeframe for using the TTM Squeeze Indicator depends on your trading style and objectives. For day traders, shorter timeframes like 5-minute or 15-minute charts are often more effective, as they allow for quick identification of squeezes and subsequent price moves within a single trading session. Swing traders, on the other hand, might find that daily or 4-hour charts provide a better perspective for capturing larger price moves that unfold over several days or weeks.

In my experience, the TTM Squeeze works well across various timeframes, but it’s essential to match the timeframe to your specific trading goals. For example, if you’re looking for quick intraday profits, shorter timeframes will offer more frequent signals. Conversely, if you’re aiming for bigger moves over a longer period, higher timeframes will reduce the noise and help you focus on more significant market shifts. Ultimately, the key is to experiment with different timeframes and find the one that aligns best with your trading strategy and risk tolerance.

It isn’t a silver bullet for your trading plan — but the TTM Squeeze is one of the many topics you should learn as part of your trading education!

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Frequently Asked Questions

How Do I Plot the TTM Squeeze Indicator?

Plotting the TTM Squeeze Indicator is generally straightforward on most trading platforms. On thinkorswim, for example, you can add it from the list of available indicators. Once added, you’ll see the dots and histogram bars on your chart.

How Should I Trade the TTM Squeeze Indicator?

Trade the TTM Squeeze by waiting for the indicator to signal a squeeze (red dots) and then watching for the squeeze to fire (green dots and changing histogram bars). Always use other indicators for confirmation and set appropriate stop-loss and take-profit levels.

What Indicator Goes Best with TTM Squeeze?

Many traders use moving averages or RSI along with the TTM Squeeze for additional confirmation. The choice of additional indicators can depend on your trading style and the market you’re trading in.

How Do I Setup TTM Squeeze Indicator?

Setting up the TTM Squeeze Indicator involves adding it to your chart on your trading platform. On platforms like thinkorswim, it’s as simple as selecting it from the list of indicators. Once added, you can customize its settings according to your trading needs.

What Is the Momentum Oscillator in TTM Squeeze Indicator?

The momentum oscillator is a crucial component of the TTM Squeeze Indicator. It works alongside squeeze fires and the volatility component to identify trading opportunities. When the line in the momentum oscillator turns light blue, it may indicate a favorable performance, signaling a possible security investment opportunity.

What Should Be Considered for Trades and Actions in TTM Squeeze?

In TTM Squeeze, trades and actions should be taken with a thorough understanding of the associated risks. Knowing the prices where potential losses could occur is vital, as well as your exit options if they do. Also, keeping track of profits and analyzing price changes can help improve the performance number of your trades.

How Do Specific Strategies Like ATR and Straddle Work in TTM Squeeze?

ATR (Average True Range) and strategies like straddle and spread are often used with the TTM Squeeze Indicator. The default settings can be adjusted for specific exit points. You can also opt for strategies like buying to cover or going naked, depending on your risk to reward ratio.

How Do Account and Volume Factors Impact TTM Squeeze Trading?

When using the TTM Squeeze Indicator, your account should be well-managed, considering the position size and potential gain or loss. Members within a trading community can invest or sell based on volume and limit settings. A higher fill rate can sometimes indicate a stronger trading opportunity.