The Squeeze Trading Station Technical Indicator

The Squeeze is a TradeStation technical indicator we will look at that I use for both day trading and swing trading. The Squeeze TradeStation technical indicator takes advantage of "quiet periods" in the market when the volatility has decreased significantly, and the market is building up energy for its next major move higher or lower. This TradeStation technical indicator was introduced to me by my trading partner, Hubert Senters, and it has become an integral part of my own trading plan.

For students of Bollinger Bands, periods of low volatility are identified as the times when the bands "move closer together." This is always great in hindsight, but in real time, how does a trader know that the current narrowness is really narrow enough to qualify as low volatility? This TradeStation technical indicator answers that question by adding in the Keltner Channels as well as a Momentum Index Oscillator.

For readers who are unaware of how these TradeStation technical indicators work, I'll take a few moments to explain them here. Bollinger Bands are a type of envelope that are plotted at standard deviation levels above and below a moving average. This produces an effect of having the bands widen during periods of higher volatility and contract during less volatile periods. During periods of lower volatility, in sideways moving markets, the bands contract toward the moving average. Keltner Channels are based on a standard Moving Average. The actual band lines are offset by a positive and negative standard deviation value from the central moving average value, to provide upper and lower bands. While the Bollinger Bands expand and contract as the markets alter between periods of high and low volatility, the Keltner Channels stay in more of a steady range. The Momentum Index is used to estimate the direction, velocity and turning points of market movements. Make sense? Ok let's look at how I use all of this for a TradeStation technical indicator set up.

The quiet periods I'm looking for are identified when the Bollinger Bands narrow in width to the point they are actually trading inside of the Keltner Channels. This marks a period of reduced volatility and signals that the market is taking a breather, building up steam for its next move. The TradeStation technical indicator signal occurs when the Bollinger Bands then move back outside the Keltner Channels. I use a TradeStation technical indicator 12 period Momentum Index Oscillator to determine whether to go long or short. If it is above zero when this happens, I go long, if it is below zero, I go short. These are all canned studies that come with most charting packages. On the TradeStation technical indicator for the parameters, I just use the default settings on TradeStation. These readings are 20 &1.5 for the Keltner Channels and 20 & 2 for the Bollinger bands. I also took an extra step and turned all of these into an TradeStation technical indicator which makes it easier to read on the chart.