I wanted to explain one of my favourite tools that has benefited me in recent weeks. My goal is to open people up to alternative tools that may not be within their immediate choice. This will be a simple introduction with an aim to help inspire people to study further.
Squeeze Momentum Indicator
The indicator designed by LazyBear is a good tool based on the TTM Squeeze volatility indicator. Source.
Little and high volatility
With face pace markets, we can use the volatility in our favour. Being able to tell if a market is trending, correcting or range bound should be easy for us to see. So direction and momentum is an important early step for charting. We identify resistance and support to give us an idea of a market when it is in a range.
Bollinger
One tool to help us identify activity in a range bound market is the Bollinger Bands. It is primarily used to help us see over bought or over sold conditions. A common strategy is to look for candles breaking the upper limit of the Bollinger or the lower limit. Though it could be used to help small move trades. It is usually a means to identify and tag movements rather than use it as a signal to buy or sell. It is a great way to gauge trends. Simple and elegant.
Keltner
Having the ability to take tools that work for us and improve their functionality to better fit our particular needs can give us great advantages. Through the use of two sets of Bollinger Bands, traders can achieve a greater level of analytical precision. Though there is little difference, The Keltner Channel is taking two Bollinger Bands to find an Average True Range. One important thing to note, how the channels are created, the interpretation is generally the same. What we can do with the Keltner channel is help us identity a squeeze in momentum (in the channel) or an increase in volatility (out the channel).
Squeeze and the Triangle Breakout
Using the
LTC
chart on 1D time frame. We see two significant dotted lines. The red descending trend line that stretches back to the all time high. The green dotted up-trend line that stretches back to March 2017. Looking at the Squeeze Momentum Indicator you can see a similar triangle within the upwards and downward trend movements.
The bright green/red bars help us identify if these micro trends are going with their directional movement for a longer duration. You can see when these movements break down back to the median line. They change to a darker shade to show reversal movement.
The white cross on the median tell us when there is increased volatility. The black crosses on the median line tells us when there is a momentum squeeze.
Putting it together
In this particular case, we see the positive momentum breaking down towards then end of our triangle. This would still be considered positive volatility until the white cross on the median line switches to black. This had happened and is marked by the first set of white vertical lines on March 3rd. Ironically 1 year from where this uptrend line has been established. A few days of sideways movement is noticeable. This tells us of a high likelihood to a move of negative volatility. On the second set of white vertical lines we see the breakout to the negative. This could be spotted by the swap to negative indication. SMI can be a powerful tool to help us see and predict volatility increase to the negative or positive. In this case, we were nearing the end of a triangle. With the clues we saw. We had a strong chance of guessing which direction this breakout would occur. Next step is to watch for the median cross to change to white. Here it would mean further volatility to the negative.
Squeeze Momentum Indicator
The indicator designed by LazyBear is a good tool based on the TTM Squeeze volatility indicator. Source.
Little and high volatility
With face pace markets, we can use the volatility in our favour. Being able to tell if a market is trending, correcting or range bound should be easy for us to see. So direction and momentum is an important early step for charting. We identify resistance and support to give us an idea of a market when it is in a range.
Bollinger
One tool to help us identify activity in a range bound market is the Bollinger Bands. It is primarily used to help us see over bought or over sold conditions. A common strategy is to look for candles breaking the upper limit of the Bollinger or the lower limit. Though it could be used to help small move trades. It is usually a means to identify and tag movements rather than use it as a signal to buy or sell. It is a great way to gauge trends. Simple and elegant.
Keltner
Having the ability to take tools that work for us and improve their functionality to better fit our particular needs can give us great advantages. Through the use of two sets of Bollinger Bands, traders can achieve a greater level of analytical precision. Though there is little difference, The Keltner Channel is taking two Bollinger Bands to find an Average True Range. One important thing to note, how the channels are created, the interpretation is generally the same. What we can do with the Keltner channel is help us identity a squeeze in momentum (in the channel) or an increase in volatility (out the channel).
Squeeze and the Triangle Breakout
Using the
LTC
chart on 1D time frame. We see two significant dotted lines. The red descending trend line that stretches back to the all time high. The green dotted up-trend line that stretches back to March 2017. Looking at the Squeeze Momentum Indicator you can see a similar triangle within the upwards and downward trend movements. The bright green/red bars help us identify if these micro trends are going with their directional movement for a longer duration. You can see when these movements break down back to the median line. They change to a darker shade to show reversal movement.
The white cross on the median tell us when there is increased volatility. The black crosses on the median line tells us when there is a momentum squeeze.
Putting it together
In this particular case, we see the positive momentum breaking down towards then end of our triangle. This would still be considered positive volatility until the white cross on the median line switches to black. This had happened and is marked by the first set of white vertical lines on March 3rd. Ironically 1 year from where this uptrend line has been established. A few days of sideways movement is noticeable. This tells us of a high likelihood to a move of negative volatility. On the second set of white vertical lines we see the breakout to the negative. This could be spotted by the swap to negative indication. SMI can be a powerful tool to help us see and predict volatility increase to the negative or positive. In this case, we were nearing the end of a triangle. With the clues we saw. We had a strong chance of guessing which direction this breakout would occur. Next step is to watch for the median cross to change to white. Here it would mean further volatility to the negative.
Comment:
One thing to note on the indicator is the darkening of the most recent bar circled here.This means there could be a chance of a return to the median and a move to the positive. This isn't always the case. If a white cross develops. This could drop further. If the crosses stay black. There can be a move to the positive.
