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Does anyone Trade Squeezes?
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Does anyone Trade Squeezes?

  #1 (permalink)
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Does anyone Trade Squeezes?

Hi,

After reading John Carter's "Mastering the Trade", I decided to do some testing on the Bollinger Band squeeze to see if I could make it work.

I wrote a strategy based loosely on the RSqueeze indicator and the description in the book but it does not seem to be profitable at all in any time frame I try on any instrument.

Does anyone here use this method successfully? I have attached the strategy as this could of course be a problem with either my understanding of the method or the actual code I produced.

Any guidance gratefully accepted.

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  #3 (permalink)
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simulatorboy View Post
Hi,

After reading John Carter's "Mastering the Trade", I decided to do some testing on the Bollinger Band squeeze to see if I could make it work.

I wrote a strategy based loosely on the RSqueeze indicator and the description in the book but it does not seem to be profitable at all in any time frame I try on any instrument.

Does anyone here use this method successfully? I have attached the strategy as this could of course be a problem with either my understanding of the method or the actual code I produced.

Any guidance gratefully accepted.


I have heard from others on the Tradestation forum that it is not profitable method. I think like anything it will work sometimes, but not all the time. Not sure how often it does actually work, though. I'll tell you this. I used to be a member of Trade the markets and spoke to Hubert on the phone a couple of times. He does not put a lot of value in the squeeze.

David

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Squeeze or Snooze

The "squeeze" identifies narrow trading ranges by comparing Bollinger Bands and Keltner Channels. The condition that the Bollinger Band is inside the Keltner Channel just means that StDev < k*ATR or that price did not move much when compared to volatility. This is just a barbwire condition.

Further the indicator uses a short term momentum of period 12 to identify a breakout from that trading range.

This method will get you a lot of false breakouts. During accumulation or distribution periods there often is a test in the opposite direction to trap weak money, and if you use a short term momentum indicator and follow the breakout, you will get trapped. Also you will fall pray to false breakouts during noon.

The squeeze indicator suggests that some pressure is building up, driving prices up or down, once the pressure can no longer be contained. This maybe true, if you expect volatiliy to rise (market opens, news release, end of noon break). But when the market simply sleeps, the squeeze will also show up, but this is not a squeeze but a snooze. And you would certainly not want to trade any brekaouts then.

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I think Carter's book is an excellent reference on setting up trading plans and having specific trading rules. If you're writing out your trading rules in the same detail as Carter's book, then you've done a great job documenting your trading plan.

When it comes to the setups in the book, keep in mind it was written, and uses examples, in the period of the low volatility mid 2000's (seems strange to write that). On a number of setups, you need to consider the typical movement vs. what he described in the book (i.e. stop losses as one example).

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I also agree that it is a good book and worthwhile reading it. I have read it and don't regret the time I have spent. The setups - including the squeeze - are well documented. You just won't make money, if you applied them mechanically.

The squeeze has a time element. So if the squeeze appears and you have carefully watched volume and identified an accumulation phase, you then will wait for a false breakout to the downside trapping some of the weaker longs. You might then want to participate in the breakout to the upside that follows. But do you need the squeeze to identify a trading range that takes about 10 bars to develop?



blenderking View Post
I think Carter's book is an excellent reference on setting up trading plans and having specific trading rules. If you're writing out your trading rules in the same detail as Carter's book, then you've done a great job documenting your trading plan.

When it comes to the setups in the book, keep in mind it was written, and uses examples, in the period of the low volatility mid 2000's (seems strange to write that). On a number of setups, you need to consider the typical movement vs. what he described in the book (i.e. stop losses as one example).


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Re: Does anyone Trade Squeezes?

The squeeze tends to work better on higher time frames like 1hr 4hr or daily charts for swing trading. I use it to identify momentum direction across multiple time frames. It fails miserably on intraday time frames but like any indicator it depends on how you use it and your trading plan

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Here's an example of the squeeze as a MTF momentum indicator on the right side of the screen (see attached) used with a simple short-term Bollinger band strategy. It doesn't always work but it increased your odds of success to trade in the direction of other time frames.

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Does anyone Trade Squeezes?-es-mtf-momentum-squeeze.png  
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A twist on the squeeze, the Darvas Squeeze!

Enjoy!


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