TTM Squeeze Histogram Backtester

Test if the TTM Squeeze Histogram is effective in timing momentum shifts in your favorite markets, on any time frame chart.

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Note:

If you need help importing the TTM Squeeze Histogram Backtester into ThinkOrSwim, here is a step-by-step tutorial which walks through the entire process. Make sure to select the "Strategy" tab in the studies menu, when importing.

Introduction

The TTM Squeeze indicator has been a beloved tool for most traders who began their careers in the 21st century. It combines the Keltner Channels and Bollinger Bands to provide traders with insight when market volatility is compressing, and when it is about to expand.

Within the TTM Squeeze there are two different components that can help a trader:

  1. Squeeze Dots
  2. Squeeze Histogram

In this thinkScript tutorial, we are focused on unpacking the TTM Squeeze Histogram, looking to answer one simple question:

How effective is the TTM Squeeze Histogram in timing momentum shifts in the market?

The TTM Squeeze Histogram is considered to be a forefront momentum indicator, and in today’s tutorial, we’ll build a backtester to test that theory.

Let's dive in!

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How to Read the TTM Squeeze Histogram?

The TTM Squeeze Histogram is primarily used as a momentum indicator, with the histograms providing clues into the ebbs and waves of the market.

Let’s start with understanding how to read the TTM Squeeze Histogram indicator.

Within the histogram bars, you will find four different colors that plot in the lower study:

  1. Cyan
  2. Blue
  3. Yellow
  4. Red

Each histogram color is derived from its relationship from the prior bar, along with its relationship with the zero line. While simple, the colors provide useful information for traders to visually assess if momentum is decreasing or increasing.

Cyan Squeeze Histogram:

A cyan histogram presents itself when the histogram bar is increasing in comparison to the prior bar AND the histogram bar is greater than 0.

Blue Squeeze Histogram:

A blue histogram presents itself when the histogram bar is decreasing in comparison to the prior bar AND the histogram bar is greater than 0.

Red Squeeze Histogram:

A red histogram presents itself when the histogram bar is decreasing in comparison to the prior bar AND the histogram bar is less than 0.

Yellow Squeeze Histogram:

A yellow histogram presents itself when the histogram bar is increasing in comparison to the prior bar AND the histogram bar is less than 0.

 

Histogram Patterns and Momentum Clues

Once you understand what the different histogram bar colors represent, you can start to piece together patterns in momentum.

Here are a few commonly repeating patterns:

  1. Cyan bars increasing in height, in consecutive order = buying momentum increasing
  2. Red bars increasing in height, in consecutive order = selling momentum increasing
  3. 7+ consecutive cyan bars, with the first blue histogram bar = buying momentum slowing down, potential momentum reversal upcoming
  4. 7+ consecutive red bars, with the first yellow histogram bar = selling momentum slowing down, potential momentum reversal upcoming

Let's take a look at some examples.

For example, if you see consecutive cyan histogram bars in a row, that’s a cyan that momentum is increasing and building upon itself. Usually, this results in upwards price action, supported with sustained bullish activity.

TTM Squeeze Histogram - Cyan Bars

On the other hand, say you see consecutive red histogram bars in a row. That’s a sign of the opposite; bears in control with downward pressure on price action.

TTM Squeeze Histogram - Red Bars

Beyond spotting consecutive histogram bars of the same color, the first histogram bar that is a different color also provides useful information.

If there are consecutive cyan histogram bars, and we see the first blue bar, that indicates the upward momentum pressure is now slowing down, and momentum is pausing (and maybe even reversing!).

If there are consecutive red histogram bars, and we see the first yellow bar, that indicates the downward momentum pressure is now slowing down, and momentum is likely to reverse. Combined with other trend or stochastic filters, this could serve as a nice reversal entry point in the market you’re studying.

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