I heard about the use of a TTM Squeeze method over the past few months and after finding out that it was only available on a few platforms, I decided to see if I could adapt to the stockcharts.com site.
It's essentially a Bollinger Band (BB) superimposed over a Keltner Band (KB). This setup fine tunes the Bollinger Band squeeze that normally breaks out to the upside or downside in a big way.
The BB have an opaque red tint, while the BB have a blue tint overlay. The intersection of both areas is mixed to a nice purple/violet/Barney looking color.
The way you know this has been triggered is by the BB width coming inside the KB. Looking down below at the SPY in mid May of 2011 you see the first sign that this has occurred by seeing the light red area appearing both above and below the purple/violet area.
Now that you have been notified by the trigger action, you still need to know if it is going to break to the upside or downside. You can use whatever momentum oscillator you find works best for you.
At the moment I am using a Slow Stochastic but I have also place a normal RSI and ROC as well to assist with making a better decision. It may even be a better idea to use a non-price related indicator like Money Flow as well. More on this later.
So in this example we see that the Slow Stochastic oscillator has turned to a bearish indicator so you could go short on the SPY in mid-May and cover in mid-June when the oscillator changed.
Again in late August the trigger came up but changed direction the following week. So that was a bit of a whip saw effect but if you follow the following points of getting in on the circles and out on the squares you end up with net-positive results.
The chart below is shown in a weekly time frame, but this can be used in most other time frames as well. I am still going about testing this for equities as well as ETFs. If you decide to use this, make sure you test it on the target stock and ensure you have a rewarding outcome first.
Excellent work Ram. Do you have any thoughts on how to turn this into a scan to automatically look for those stocks that are set to trigger using this approach?
ReplyDeleteThanks Eric. I posted a scan for the normal Bollinger Band squeeze in a following post, which I adapted from the stockcharts version. I'm going to adapt this further to find when the Bollinger Band is between the Keltner Band. @Cousin_Vinny was kind enough to point out that the trigger should be when the Bollinger Bands start to expand but when I do some back-testing I get whipsawed quite a bit. So I will tweak it some more and post the findings.
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