Squeeze Momentum Indicator

08/08/2023
indicador squeeze momentum
indicador squeeze momentum

What is Squeeze Momentum and how does it work?

The " Squeeze Momentum " (or Squeeze Momentum Indicator) is a technical indicator used in financial analysis and more specifically in technical analysis of markets such as stocks, forex, futures, and cryptocurrencies. It was developed by John Carter and was popularized in his book "Mastering the Trade".

Squeeze Momentum is designed to identify periods of low market volatility, indicating a phase of consolidation or price tightening. During these phases, the market is "compressing", similar to how a spring compresses before releasing its energy. When volatility is low, price movements are limited, and this can anticipate a more significant next move.

The indicator combines three main components:

  • Bollinger Bands : These are two lines that are drawn around the price and are based on the standard deviation of the price. Generally, two standard deviations above and below a moving average are used.
  • Keltner Channels: These are two lines that are also drawn around the price and are based on the average volatility of the asset. These lines are usually calculated from an exponential moving average.
  • Momentum Histogram: This is the key component of the indicator and is displayed as a histogram at the bottom of the chart. It represents the difference between Bollinger Bands and Keltner Channels.


The operation of Squeeze Momentum is based on the behavior of Bollinger Bands and Keltner Channels. During periods of low volatility, the Bollinger Bands will move closer to the Keltner Channels, and the momentum histogram will be compressed. This creates a consolidation or "squeeze" zone on the chart, signaling a potential burst of volatility and significant price movement.

When the momentum histogram crosses above zero and breaks out of the squeeze, it is considered a bullish or buy signal. On the other hand, if the histogram crosses below zero and breaks out of the squeeze, it is considered a bearish or sell signal.

It is important to note that, like any indicator, Squeeze Momentum is not foolproof and should be used in conjunction with other tools and analytics to make informed trading decisions. Also, as financial markets are inherently unpredictable, there is always inherent risk in trading any indicator. Therefore, traders are advised to practice proper risk management and conduct extensive testing before using Squeeze Momentum in their trading.

Importance of Squeeze Momentum in Technical Analysis

Squeeze Momentum is a powerful tool in technical analysis that can provide traders and investors with valuable information about volatility and possible changes in price direction in financial markets. Its importance lies in several key aspects:

  • Identification of Consolidation Phases and Emerging Trends: Squeeze Momentum helps identify periods of low volatility and consolidation in the market. During these phases, the indicator shows a narrowing of the Bollinger Bands and Keltner Channels, indicating that the market is compressing and that a possible burst of volatility is expected in the near future. This can be useful for traders looking to identify opportune times to enter a position, as a tightening phase often precedes significant price moves.
  • Generation of entry and exit signals: When the momentum histogram crosses above or below zero and exits the squeeze, buy or sell signals are generated, respectively. These signals can indicate potential opportunities to open or close positions in the market. It is always recommended to combine these signals with other indicators or analysis to confirm the direction of the market before making trading decisions.
  • Adaptability to different time frames: Squeeze Momentum can be applied on different time frames, from short-term charts to daily or weekly charts. This allows traders to tailor their approach to their trading style and investment horizon.
  • Complement with other tools: Squeeze Momentum can be used in conjunction with other technical analysis tools to obtain a more complete view of the market. By combining Squeeze Momentum with indicators such as MACD , RSI , Moving Averages , among others, traders can confirm and reinforce their trading decisions.
  • Reduced Uncertainty: By highlighting periods of low volatility and consolidation, Squeeze Momentum can help traders avoid entering the market during times of uncertainty or range-bound. This can help improve trading accuracy and reduce the risk of trading in unfavorable market conditions.

It is important to remember that no indicator is foolproof and Squeeze Momentum should be used as part of a comprehensive technical analysis and risk management approach. Furthermore, it is essential to understand that financial markets are dynamic and there is always inherent risk in trading with any tool. Therefore, traders are advised to combine Squeeze Momentum with a solid understanding of market fundamentals and a proper risk management strategy .

Detailed explanation of the Squeeze Momentum indicator

The Squeeze Momentum Indicator, also known as the "Squeeze Momentum Indicator" in English, is an advanced technical analysis tool used to identify periods of low volatility and possible changes in price direction in financial markets. It was developed by John Carter and has gained popularity in the trading community due to its ability to identify potential trading opportunities at key market moments.

The Squeeze Momentum indicator combines three main components:

  • Bollinger Bands: Bollinger Bands are two lines that are drawn around the price and are based on the standard deviation of the price. Generally, two standard deviations above and below a moving average are used. The width of the bands is adjusted according to the volatility of the market; when volatility is high, the bands widen, and when it is low, they contract.
  • Keltner Channels: The Keltner Channels are two lines that are also drawn around the price and are based on the average volatility of the asset. These lines are usually calculated from an exponential moving average. Like Bollinger Bands, Keltner Channels also adjust based on market volatility.
  • Momentum Histogram – This is the key component of Squeeze Momentum and is displayed as a histogram at the bottom of the chart. The momentum histogram represents the difference between Bollinger Bands and Keltner Channels. When Bollinger Bands and Keltner Channels contract, the momentum histogram is compressed, indicating a phase of low volatility or consolidation in the market. When Bollinger Bands and Keltner Channels expand, the momentum histogram shifts up (in positive values) or down (in negative values), suggesting a possible burst of volatility and significant movement in the price.

Interpretation of Squeeze Momentum:

  • Consolidation (Squeeze): When the momentum histogram is compressed and approaches zero, it indicates a phase of consolidation or price tightening. At this point, traders should be on their toes as low volatility is a sign that the market is preparing for the next significant move.
  • Expansion (Release): When the momentum histogram moves up (positive values) or down (negative values) and away from zero, this indicates that the market is exiting the consolidation phase and is experiencing an increase in the volatility. This can be the start of an emerging trend or a strong price breakout.

Trading signals:

  • Buy signal (Long): A buy signal is produced when the momentum histogram crosses above zero and exits the squeeze (consolidation).
  • Sell ​​Signal (Short): A sell signal is produced when the momentum histogram crosses below zero and exits the squeeze.

It is important to note that, as with any indicator, Squeeze Momentum is not infallible and should be used in conjunction with other technical analysis and risk management tools to make informed trading decisions. Also, it is always advisable to practice and test any indicator in different scenarios before applying it in real trading.

How to identify and understand the signals generated by Squeeze Momentum

To identify and understand the signals generated by the Squeeze Momentum indicator, it is critical to become familiar with its behavior and how it relates to price and market volatility. Here are some key steps to identify and understand Squeeze Momentum signals:

  • Watch for the Consolidation Phase (Squeeze): The first sign to look for is a consolidation phase in the market, which is when the Bollinger Bands and Keltner Channels contract, and the momentum histogram compresses close to zero. This indicates that the market is experiencing low volatility and is preparing for the next significant move.
  • Wait for the expansion (Release): After the consolidation phase, the market will experience an expansion in Bollinger Bands and Keltner Channels, and the momentum histogram will move up (positive values) or down (negative values), moving away from zero. This suggests an increase in volatility and a possible directional movement in price.
  • Identify buy and sell signals: Buy and sell signals are generated when the momentum histogram crosses above zero or below zero, respectively, and exits the squeeze (consolidation phase). A crossing above zero indicates a buy signal (long position), while a crossing below zero indicates a sell signal (short position).
  • Confirm with other tools and analysis: Although Squeeze Momentum can provide valuable signals, it is always advisable to confirm them with other technical analysis tools. Use additional indicators, candlestick patterns, support and resistance, or other complementary analysis to confirm market direction before making trading decisions.
  • Adjust your risk management strategy: As with any trading strategy, it is essential to have proper risk management. Set stop-loss and take-profit levels based on volatility and Squeeze Momentum signals to protect your positions and ensure that your losses are limited and your profits are maximized.

Strategies for interpreting and taking advantage of market conditions

Interpreting and taking advantage of market conditions is essential to successful trading and investing. Here are some strategies that can help you use the Squeeze Momentum indicator and other analysis tools to interpret and take advantage of market conditions:

  • Identify consolidation and trend phases: Use Squeeze Momentum to identify consolidation periods (squeeze) and emerging trends (release). During the consolidation phase, avoid opening positions and wait for the market to come out of the squeeze for clearer direction signals.
  • Confirm with other indicators: Use Squeeze Momentum in conjunction with other technical indicators, such as the MACD, RSI or moving averages, to confirm the signals generated. The convergence of multiple indicators can increase the probability of a successful trade.
  • Set stop-loss and take-profit levels: Set stop-loss and take-profit levels based on market volatility and Squeeze Momentum signals. This will allow you to protect your profits and limit your losses in case the market moves against your position.
  • Practice risk management: Use a proper risk management strategy to allocate an appropriate position size based on your capital and risk tolerance. Don't risk more than you are willing to lose on a single trade.
  • Watch Support and Resistance Levels: Combine Squeeze Momentum with identifying key support and resistance levels on the chart. Historical price levels can act as turning points and help you determine possible entry and exit points.
  • Use multiple time frames: Analyze Squeeze Momentum in different time frames, from short term to long term. Signals generated on higher time frames can provide a broader view of the overall market trend.
  • Practice trading on paper: Before risking your capital, practice trading Squeeze Momentum on paper or on a demo account. This will allow you to familiarize yourself with the indicator and build confidence in your strategy before trading live.
  • Be disciplined and patient: Do not get carried away by emotions and follow your trading strategy in a disciplined manner. Wait for the clear Squeeze Momentum signals to occur before making any trading decisions.

Remember that there is no foolproof trading strategy, and there is always risk involved. It is essential to maintain a rational and realistic mindset, learn from your mistakes, and adjust your approach as you gain experience with the Squeeze Momentum indicator and other aspects of technical analysis.


Using Squeeze Momentum to identify long-term trends.

While Squeeze Momentum is commonly used to identify periods of low volatility and possible changes in price direction in the short to medium term, it can also be adapted to help identify long-term trends in financial markets. Here are some guidelines on how to use Squeeze Momentum to identify long-term trends:

  • Select a suitable time frame: To identify long-term trends, it is essential to use a broader time frame in your charts, such as daily or weekly charts. This will allow you to capture more significant price movements and filter out intraday noise.
  • Look at Squeeze Momentum in the Big Picture: Instead of focusing solely on the entry and exit signals generated by Squeeze Momentum, pay attention to the overall trend of the momentum histogram on the selected time frame. A histogram with positive values ​​for a long period of time could suggest an uptrend, while a histogram with negative values ​​for a long time could indicate a downtrend.
  • Use Squeeze Momentum as a Filter: Squeeze Momentum can be used as an additional filter to confirm the direction of the long-term trend. For example, if the momentum histogram is positive and the indicator shows a tightening or contracting phase, this could indicate a temporary consolidation within a larger uptrend.
  • Combine with other analysis tools: To improve long-term trend identification, combine Squeeze Momentum with other technical analysis tools, such as moving averages, trend lines, chart patterns, or trend-following indicators. These complementary items can provide additional confirmation of the direction of the trend.
  • Consider market fundamentals: In addition to technical analysis, it is important to consider market fundamentals. The long-term trend can be reinforced by economic factors, relevant news, geopolitical events and developments in the industry or sector to which the asset you are analyzing belongs.
  • Be patient and realistic: Identifying long-term trends requires patience and a realistic perspective. Long-term trends can take weeks, months, or even years to fully develop. Do not wait for clear and quick signals in the Squeeze Momentum to identify long-term trends.

Remember that Squeeze Momentum is just a tool in technical analysis and no indicator provides perfect signals. Use Squeeze Momentum in conjunction with other analysis techniques and develop a comprehensive strategy that suits your goals and trading style. Furthermore, it is always advisable to practice and test any approach in different scenarios before applying it in real trading.

Incorporating other indicators and complementary tools

Incorporating other indicators and complementary tools into the analysis with Squeeze Momentum can provide a more complete and reliable view of the market. Here are some additional tools that you can use in conjunction with Squeeze Momentum to improve your technical analysis:

  • Moving Average (MA): Moving averages are popular indicators to smooth out price data and help identify trend direction. You can use a moving average as an additional filter to confirm the direction of the long-term trend. For example, if Squeeze Momentum signals a possible uptrend and price holds above a rising moving average, this could reinforce the bullish signal.
  • MACD (Moving Average Convergence Divergence): The MACD is a momentum indicator that shows the difference between two exponential moving averages. It can provide bullish or bearish crossover signals that can be used in conjunction with Squeeze Momentum signals to confirm changes in price direction.
  • RSI (Relative Strength Index) : The RSI measures the speed and change of price movements. It can help identify overbought or oversold conditions, which can complement the signals generated by Squeeze Momentum.
  • Bollinger Bands: Although Squeeze Momentum uses Bollinger Bands as part of its calculation, you can also use them independently. Bollinger Bands can help identify support and resistance levels, as well as breakout signals when the price moves beyond the bands.
  • Fibonacci Retracement: Uses Fibonacci retracement levels to identify possible trend reversal levels. Combine these levels with Squeeze Momentum signals to find potential entry or exit areas in the market.
  • Chart Patterns: Pay attention to chart patterns, such as head and shoulders, double top, double bottom, triangles, and flags. These patterns can provide additional signals that support or contradict the Squeeze Momentum signals.
  • Support and Resistance Levels: Identify key support and resistance levels on the chart and use them in conjunction with Squeeze Momentum signals. Historical price levels can act as turning points and help you determine possible entry and exit points.

Using multiple indicators and complementary tools can provide a more reliable view of the market, but it's also important to avoid over-analysis. Do not overload your charts with indicators, as this can lead to confusion and paralysis in your trading decisions. Instead, carefully select the tools that best suit your strategy and trading style. Also, practice and test your strategies in different scenarios before applying them in real trading.


Tips to improve the accuracy and effectiveness of the analysis

To improve the accuracy and effectiveness of your technical analysis, consider implementing the following tips:

  • Study and practice constantly: Technical analysis takes time and effort to master. Spend time studying the different indicators, chart patterns, and analysis tools you use. Practice on demo accounts or paper trading to gain experience before risking your capital.
  • Use multiple time frames: Analyzing multiple time frames can provide a broader view of the market. Combine short, medium and long-term analysis to confirm trends and signals.
  • Confirm with different indicators: Do not rely solely on a single indicator. It uses a combination of different indicators and tools to get stronger confirmation of the signals.
  • Learn to manage your emotions: Trading can be emotionally challenging. Learn to stay calm and not let emotions affect your trading decisions. Discipline and patience are key to long-term success.
  • Apply risk management: Always set appropriate stop-loss and take-profit levels to protect your trades. Do not risk an excessive amount of your capital in a single operation.
  • Evaluate your trades: Keep track of your trades and review your decisions. Analyze your successes and failures to identify areas for improvement and adjust your strategy accordingly.
  • Stay informed: Being aware of economic news and events that may affect the markets is important to making informed decisions. Keep an economic calendar and follow the relevant news.
  • Don't get hung up on perfectionism: Technical analysis is not an exact science, and not every trade will be a winner. Accept that there will be losing trades and learn from them without getting discouraged.
  • Practice patience: Wait for the signals to be clear and strong before entering a trade. Don't feel pressured to act impulsively.
  • Be realistic and flexible: Recognize that the market can change at any time. Adjust your analysis and strategy based on changing market conditions.

Remember that technical analysis is a skill that develops over time and practice. Don't get discouraged if you don't get immediate results. Persevere, keep a positive mindset, and keep improving your skills over time.