TTM Squeeze: Guide To Volatility & Breakout Strategy

Many traders struggle to identify periods of consolidation right before a major market move. The TTM Squeeze indicator, developed by John Carter, was specifically designed to address this challenge. It accurately signals these quiet periods of low volatility, which often precede an explosive breakout.

This comprehensive guide provides a detailed methodology for using the TTM Squeeze. You will learn its mechanism, how to identify a “squeeze” correctly, and how to execute high-probability trades during the subsequent momentum shift.

1. What Is the TTM Squeeze?

The TTM Squeeze is a technical indicator developed by trader John Carter, which identifies periods of very low price volatility (known as a “squeeze”) that often occur right before a significant price breakout (StockCharts, 2024; TrendSpider, n.d.).

In technical analysis, the TTM Squeeze signals when a market is consolidating and building energy for its next move. This makes it an invaluable tool for momentum and breakout trading, as it helps traders anticipate when a quiet market is about to become very active, providing a clear edge in timing entries.

2. How Does the TTM Squeeze Work?

The logic behind the TTM Squeeze is a clever interplay between Bollinger Bands and Keltner Channels. The indicator has three distinct phases: identifying the squeeze, waiting for it to fire, and then reading the velocity and directional bias.

2.1. Identifying the Squeeze

The “squeeze” is the indicator’s main event, signaling a period of low volatility. This happens when the Bollinger Bands contract and move inside the Keltner Channels. This phase of compression is represented by a series of red dots along the zero line. We think of this as the market taking a breath and coiling up energy.

2.2. Firing the Squeeze

The squeeze “fires” at the exact moment the period of low volatility ends. This is signaled when the Bollinger Bands expand and move back outside the Keltner Channels. Visually, this is the first green dot that appears after a series of red dots. This signal only tells us that volatility is back; it does not tell us the direction.

2.3. The Momentum Histogram

This is where the directional momentum component comes into play. The indicator plots a histogram that oscillates around the zero line, showing us the direction and strength of the price force.

• Bullish Force: Light blue bars above the zero line suggest an uptrend. Dark blue bars show a weakening uptrend.
• Bearish Force: Red bars below the zero line suggest a downtrend. Yellow bars show a weakening downtrend.

After a squeeze fires (a green dot appears), traders look at the color of the histogram to determine the likely direction of the breakout.

3. Components of the indicator

The indicator is built on the interaction of three key components: two for measuring volatility and one for measuring directional strength and velocity.

3.1. Bollinger Bands (BB)

Bollinger Bands are a classic technical analysis tool consisting of a central moving average plus two bands set at a standard deviation above and below it. Their primary job here is to measure market volatility.

3.2. Keltner Channels (KC)

Keltner Channels are another volatility-based indicator. They consist of a central exponential moving average (EMA) and two bands above and below it that are calculated using the Average True Range (ATR). These channels are used as a benchmark.

3.3. The Histogram & Signal Interpretation

The indicator also features a directional study, visualized as a histogram that moves above and below a zero line. This component is crucial because it gives traders a probable direction for the price move once volatility returns.

4. How to Read TTM Squeeze Signals

Reading the signals involves interpreting two key elements: the volatility dots and the histogram.

• The Squeeze Dots (Volatility Signal):
  • Red Dots = Squeeze is ON. Volatility is low, and energy is building.
  • Green Dots = Squeeze is OFF. The first green dot signals the squeeze has “fired,” and a significant move is likely starting.
• The Histogram (Directional Signal):
  • Above Zero: Bullish momentum (light blue is strongest).
  • Below Zero: Bearish momentum (red is strongest).

The core strategy is to wait for a squeeze to fire (the first green dot) and then use the histogram’s color to determine the likely direction of the move.

A Real-World Example

Let’s look at a specific case: Tesla (TSLA) on the daily chart in late January 2023.

For several days, TSLA’s price consolidated around $140, and the TTM Squeeze indicator printed a series of red dots. This confirmed the stock was in a squeeze.

On January 26, 2023, the squeeze “fired,” showing its first green dot. Simultaneously, the histogram flipped to a light blue bar, indicating strong bullish force.

This confluence provided a high-probability long signal. In the two weeks that followed, TSLA’s price rallied from the ~$145 level to over $200.

5. Calculating the TTM Squeeze

Traders won’t need to perform this calculation manually, as platforms do it automatically. However, understanding the basic logic helps traders trust the signals.

The tool runs two parallel calculations: one for volatility and one for directional strength.

• The Squeeze Calculation (Volatility): The logic is simple: if the Bollinger Bands contract to fit completely inside the Keltner Channels, the Squeeze is ON (a red dot). Otherwise, it is OFF (a green dot).
• The Histogram Calculation (Direction): The histogram measures price strength by comparing the current price to its average over a set period (typically 20). The result is then smoothed to create the colored bars.

6. TTM Squeeze Trading Setups

Here are four practical ways to apply the indicator in live markets.

6.1. The Breakout Strategy

Trading the breakout is the most common approach. The strategy involves waiting for a squeeze (red dots) to “fire” (the first green dot) to capture the explosive moves that often follow. An entry is then considered based on the direction shown by the histogram’s velocity.

6.2. The Trend Continuation Strategy

A higher-probability approach is to trade with the dominant trend. First, identify the main trend (e.g., price is above the 50 EMA). After a squeeze forms during a pullback, an entry is only taken if the squeeze fires in the same direction as the primary trend.

6.3. The Reversal Setup

As an advanced, counter-trend setup, the goal is to spot trend exhaustion. After a long trend, look for signs of weakening directional force (e.g., shorter histogram bars). A potential reversal is signaled if a squeeze then fires in the opposite direction. Such a setup always requires extra confirmation from price action.

6.4. Scalping & Day Trading Applications

The Squeeze is also effective on lower timeframes (e.g., 5m, 15m) for short-term trading. The same breakout and continuation setups apply, but profit targets and stop-losses must be managed more tightly.

7. Scanners and Filters for the Squeeze

Using a scanner is the most efficient way to find TTM Squeeze setups.

• Scanning on TradingView: In the stock screener, simply set a filter where the condition is “Squeeze is On.”
• Scanning on Thinkorswim: Use the “Scan” tab to add a study filter for TTM_Squeeze() and set the condition to Squeeze_On is true.
• Improving your scans (Our personal tip): A raw volatility scanner will often give traders a very long list of stocks. The helpful way to improve the quality of these results is to add a volume filter. Screen for Relative Volume greater than 1.5 to ensure there’s genuine interest.

8. Pros & Cons of the indicator

Here’s a quick breakdown of the indicator’s strengths and weaknesses.

Pros

• Early breakout detection: Its greatest strength is identifying consolidation periods just before a major price move.
• Clear visual signals: The red/green dots and histogram are very easy to read, even for beginners.
• Directional bias provision: Unlike pure volatility indicators, the histogram gives a clear suggestion of the breakout’s likely velocity.

Cons

• “Fire” signals are not buy/sell signals: The green dot (the “fire”) is not a buy or sell signal. It only signals that volatility has returned, not which way the price will go.
• A lagging indicator: Because it relies on moving averages, it can be slightly behind the price in fast-moving markets.
• Less reliable in choppy markets: It can produce false “fire” signals in trendless, sideways markets.

9. Frequently asked questions about TTM Squeeze

10. Summary

The TTM Squeeze is more than just an indicator; it’s a specialized tool for understanding market volatility cycles. Its true power lies in its ability to alert traders to periods of consolidation, offering a unique edge in anticipating significant momentum shifts.

By combining the simple “squeeze on/off” signals with the directional bias of the histogram, you can build a robust framework for timing your entries. Remember, always use it as a confirmation tool within a broader trading plan, which should be part of your overall investment strategies. Consistent practice is the key to building confidence and effectively using this volatility tool.

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