The document discusses the Bollinger Band Squeeze, outlining its components and rationale for trading. It explains the Keltner Channel's relationship with the Bollinger Bands and how they can indicate overbought or oversold conditions. The squeeze can be applied across various instruments and time frames, with recommendations for customization and usage in trading strategies.

2. Bollinger Band Squeeze

3. Components of The Squeeze.
Rationale behind the indicator.
Approach you can use to develop a
customized Squeeze trading.

4. Measure the movement of
closing prices around a
moving average.

5. Moving Average
Upper Band
Lower Band
Standard
Deviation

6. The bands expand as
volatility increases and
contract as it decreases.

7. Statistically 95% of the
closing prices are contained
within the bands.

8. The average true range (ATR) of
price bars is calculated and the
channel lines are drawn a fixed
number of ATR's above and
below a moving average of
closing prices.

9. Because the ATR tends to
remain fairly consistent,
the Keltner Channel does
not change much in size.

10. Similar to Bollinger Bands,
the Keltner Channel can
be used in both breakout
and fading strategies.

11. Normal interpretation is
that price is overbought or
oversold as it approaches
these lines.

12. Keltner Channel reacts
more quickly to price
changes.

13. Bollinger Bands tighten.
Keltner Channel remains
relatively constant.

14. This means that, using the typical
default values, 95% of the closing
prices fall within 1.5 ATR's of the
moving average, and that is what
constitutes a squeeze.

17. The squeeze can be
applied to any instrument
and any time frame.

18. Default values
for the indicators
2standarddeviations,1.5ATR'sanda20periodmovingaverage

19. The first and more serious
limitation is that it's a
lagging indicator.

21. There is no such
thing as the holy
grail of trading.

22. Reduce the clutter - develop a
separate indicator for the
squeeze and remove the
Bollinger Bands and Keltner
Channel from the chart.

23. Upper and lower bands or
channel lines are the
same distance from the
moving average.

24. Bollinger Band = Moving Average +
(Number of standard deviations X
Standard Deviation)
Keltner Channel = Moving Average
+ (Number of ATR's X ATR)

25. BBUpper = Avg(close,period) +
(BBDevs X StdDev(close,period))
KCUpper = Avg(close,period) +
(KCDevs X ATR(period))

26. Squeeze = BBUpper - KCUpper

27. Squeeze =
(BBDevs X StdDev(close,period)) -
(KCDevs X ATR(period))

28. StdDev and ATR are basic functions
included in all major charting applications.
BBDevs (number of standard
deviations), KCDevs (number of ATR's)
and period (length of the moving
average) are your input values.

29. Bollinger Bands outside Keltner
Channel = positive value
Inside Keltner Channel = negative
value.

32. Use it as a filter in
conjunction with other
indicators, or use it as one
of several setup indicators.

33. Extremely effective when
applied to a higher time
frame chart.

34. You will miss out on
some winning trades

35. I also encourage you to
develop your own custom
squeeze indicator for your
platform.

36. The faster you can sit on
your hands and preserve
your trading capital.

37. FREE
NPSqueeze Indicator
http://www.netpicks.com/NPSqueeze.zip