For this play, I like to use the TTM Squeeze indicator by John Carter which is nothing more than a combination of Bollinger Bands, Keltner Channels, and the momentum oscillator. This is available on my Think or Swim platform.

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The Setup:

Entering Long

  1. Wait for when the stock is in a squeeze ( a period of low volatility) as shown by the red dots on the TTM indicator.
  2. The 8 day EMA is above the 21 day EMA
  3. Price is trading above the 21 day EMA

Exiting the Long Trade

  1. Use the ATR indicator to get out of a trade. If the stock closes below 2x the ATR then exit for a loss.
  2. If it closes above 2x the ATR then close for a profit or close part of the trade and see if the stock price continues to move up using a 2 day trailing stop.
  3. This can be set as alerts on think or swim.

Entering Short

  1. Wait for when the stock is in a squeeze ( a period of low volatility) as shown by the red dots on the TTM indicator.
  2. The 8 day EMA is below the 21 day EMA
  3. Price is trading below the 21 day EMA

Exiting the Short Trade

  1. Use the ATR indicator to get out of a trade. If the stock closes above 2x the ATR then exit for a loss.
  2. If it closes below 2x the ATR then close for a profit close part of the trade and see if the stock price continues to move down using a two day trailing stop.
  3. This can be set as alerts on think or swim.

Explanation of the TTM Squeeze indicator

Momentum

The light blue bars represent increasing upper momentum.

The dark blue bars show we are losing upper momentum.

The red bars represent increasing downward momentum.

The yellow bars show we are losing lower momentum.

Volatility

The green dots are periods of High Volatility.

The red dots are periods of Low Volatility.

The red dots are what we say is a squeeze (Low Volatility). This tells us that the buyers and sellers are in a state of equilibrium and the price is typically moving sideways in a quiet period. At some point, volatility will ramp up again and the stock price will either break up or down.