Bollinger Band Squeeze

Components of The Squeeze.

Rationale behind the indicator.

Approach you can use to develop a

customized Squeeze trading.

Measure the movement of

closing prices around a

moving average.

Moving Average

Upper Band

Lower Band

StandardDeviation

The bands expand as

volatility increases and

contract as it decreases.

Statistically 95% of the

closing prices are contained

within the bands.

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.

Because the ATR tends to

remain fairly consistent,

the Keltner Channel does

not change much in size.

Similar to Bollinger Bands,

the Keltner Channel can

be used in both breakout

and fading strategies.

Normal interpretation is

that price is overbought or

oversold as it approaches

these lines.

Keltner Channel reacts

more quickly to price

changes.

Bollinger Bands tighten.

Keltner Channel remains

relatively constant.

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.

The squeeze can be

applied to any instrument

and any time frame.

Default values

for the indicators

2 standard deviations, 1.5 ATR's and a 20 period moving average

The first and more serious

limitation is that it's a

lagging indicator.

There is no such

thing as the holy

grail of trading.

Reduce the clutter - develop a

separate indicator for the

squeeze and remove the

Bollinger Bands and Keltner

Channel from the chart.

Upper and lower bands or

channel lines are the

same distance from the

moving average.

Bollinger Band = Moving Average +

(Number of standard deviations X

Standard Deviation)

Keltner Channel = Moving Average

+ (Number of ATR's X ATR)

BBUpper = Avg(close,period) +

(BBDevs X StdDev(close,period))

KCUpper = Avg(close,period) +

(KCDevs X ATR(period))

Squeeze = BBUpper - KCUpper

Squeeze =

(BBDevs X StdDev(close,period)) -

(KCDevs X ATR(period))

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.

Bollinger Bands outside Keltner

Channel = positive value

Inside Keltner Channel = negative

value.

Use it as a filter in

conjunction with other

indicators, or use it as one

of several setup indicators.

Extremely effective when

applied to a higher time

frame chart.

You will miss out on

some winning trades

I also encourage you to

develop your own custom

squeeze indicator for your

platform.

The faster you can sit on

your hands and preserve

your trading capital.

FREE

NPSqueeze Indicator

http://www.netpicks.com/NPSqueeze.zip