TTM Squeeze Backtester for ThinkOrSwim (Free Download)

What it shows

What the Squeeze Backtester Does

The Squeeze backtester is a ThinkOrSwim strategy that places simulated trades on your chart when a Squeeze setup and a moving average trend line up. ThinkOrSwim then totals the profit and loss, so every combination of settings comes down to one dollar amount you can compare.

I built it after John Carter, who created the Squeeze, said in a webinar that he had found better settings than the defaults, a version he now calls the Squeeze Pro. The backtester lets you check whether a ticker you trade does better with settings other than the ones ThinkOrSwim gives you by default.

This was Episode 3 of our How to thinkScript series. For members, our Squeeze Course has more Squeeze backtesters with stats, and you can browse our free ThinkOrSwim backtesters for other strategies.

The Trading Rules

The Squeeze backtester trades both directions with one set of rules. The Squeeze decides when to trade, and the moving averages decide which way.

When the EMAs are stacked neither way, I treat the market as chop with no clear trend, and the backtester takes no trade. Our free Squeeze dots scan looks for the same kind of setup, 5 red dots in a row with stacked moving averages, across the whole market.

How to Read the Results

The floating P&L study shows the backtester's running profit and loss in a panel under your chart. Turn it on once, and it updates every time you change a setting.

1. Click the Studies icon and choose Global Strategy Settings.
2. Check the box to display the floating P&L study with strategies, and click OK.
3. For the totals, right-click the strategy's name on the chart and choose Show report. The report gives the total P&L and the number of trades.

Before you compare, match the strategy's settings to the Squeeze study on your chart. In the video, the nK factors didn't match at first, so the strategy's squeeze and the dots on my chart disagreed until I changed the factor.

Install it in ThinkOrSwim

How to Create the Strategy in ThinkOrSwim

The Squeeze backtester is a strategy, so you create it from the Strategies tab instead of the Studies tab. That step matters: a strategy produces a profit and loss report, and a study doesn't.

1. Click the Studies icon at the top right of your chart.
2. Switch over to the Strategies tab and click Create.
3. Give the strategy a unique name at the top of the editor.
4. Paste in the code from the Code tab on this page, and click OK, then Apply.
5. To see the trend condition, add the 13, 21 and 34-period exponential moving averages to the chart. I colored them cyan, purple and yellow.

The download is the same code as a .ts file. If you'd rather import it, our guide on how to import a thinkScript file into ThinkOrSwim covers the steps.

How the code works

The Inputs

The Squeeze backtester has 3 inputs, the same settings the built-in Squeeze study uses. You change them in the strategy's settings window, and each change redraws the trades.

The built-in Squeeze function also takes a price, which I leave at close, and an alert line of 1.0, which I didn't need to change. Our multi-time frame Squeeze indicator rebuilds the Squeeze from source code, so you can see where the 2 factors enter the math: nK multiplies the average true range, and nBB multiplies the standard deviation.

How the Code Works

The Squeeze backtester code has 7 parts, and I wrote them in this order in the video. The first 5 define the setup and the exits, and the last 2 place the orders.

Step 1: The Inputs and the Squeeze

I make the 3 settings inputs, then call the built-in Squeeze with those inputs in place of fixed numbers.

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The SqueezeAlert plot tells you whether the dot is red or green. It returns 0 on a red dot.

Step 2: The Trend Filter

Most people read the Squeeze's direction from its histogram. If you've read Mastering the Trade, you'll remember John Carter uses moving averages to define the trend and trades the Squeeze in that same direction. I used the 13, 21 and 34-period exponential moving averages.

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Bullish means the 13 is above the 21 and the 21 is above the 34. Bearish is the reverse.

Our stacked moving averages indicator plots this kind of EMA stack on a chart and marks when it changes.

Step 3: Five Red Dots

John Carter's rule is to wait for at least 5 red Squeeze dots before getting into a trade, so the backtester checks the last 5 bars.

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A red dot is 0, so a sum of 0 over 5 bars means all 5 dots were red.

Step 4: The Bullish and Bearish Signals

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A bullish signal needs the 5-dot squeeze and a bullish EMA stack on the same bar. A bearish signal pairs the 5-dot squeeze with a bearish stack.

Step 5: The Trend Exits

To keep the first version simple, I exit when the trend breaks: the 13-period EMA crosses back through the 21-period EMA.

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The [1] reads the previous bar, so each exit is true only on the bar where the cross happens.

Step 6: The Orders

AddOrder is the function that lets ThinkOrSwim place the simulated trades. Each order trades 100 shares at the closing price of the bar.

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The short side mirrors the long side: sell to open on a bearish signal, buy to close on the bearish exit.

Step 7: The 3% Profit Target

In the video, one long trade was up 3.96% at one point and still closed at a loss, because the only exit was the EMA cross. So I added a profit target on both sides.

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entryPrice() is built into ThinkOrSwim and returns the price of the open position. The long side fills at the entry price plus 3% once the high reaches it.

The short side fills at the entry price minus 3% once the low reaches it. Both orders close all 100 shares.

Examples

Results From the Video

The Squeeze backtester gave different results on different tickers and timeframes in the video. These are historical results from the charts I had loaded when I recorded, for 100 shares per trade. The video doesn't state the date range, and every sample is small.

The audio doesn't make clear which nK and nBB values were set for the Goldman Sachs and Apple runs. What it does show is the same rules losing money on one stock and making money on another.

On Goldman Sachs, the other combinations I tried made the result worse, and one was much worse. On Apple, changing one factor from 2.0 to 1.5 lowered the P&L. The defaults of 1.5 and 2.0 also looked good on Apple, but over only 2 trades.

On the 30-minute chart, every combination I tried was negative over the last 10 days, and the defaults of 20, 1.5 and 2.0 were strongly negative.

On the 4-hour chart, I tested the length. A length of 15 gave fewer trades without changing much else, a length of 10 changed the results, and a length of 30 took no trades at all. Length 20 with nK 2.0 and nBB 2.0 beat the $927 starting point with $1,368.70 over 12 trades.

What I took from the tests: the Squeeze behaves differently on each ticker and timeframe, so the settings need more testing and finessing for each one.

How I Use the Backtester

Backtesting the Squeeze settings this way is a manual, laborious process. What you get from it are patterns and tendencies for each ticker, and I make a note of them and study them.

• Start with the defaults. Run 20, 1.5 and 2.0 first and write down the total P&L and the number of trades. That's the number to beat.
• Change one input at a time. If you change length and nK together, you can't tell which one moved the result.
• Repeat on your own tickers and timeframes. Settings that worked on Apple's daily chart in the video did the opposite on Goldman Sachs.
• Count the trades. A strong total over 2 or 3 trades tells you little. Prefer settings that hold up over more trades and more symbols.

The backtester has no stop loss. A losing trade stays open until the 13 EMA crosses the 21 EMA. Before you trade a Squeeze setup, decide where your stop goes and size the position so a stop-out costs a small, fixed share of your account.

Customize and troubleshoot

Ways to Extend the Backtester

The Squeeze backtester is a starting block. You can tweak the code, add more settings and bring in more indicators as conditions.

• Add other studies as filters. Episode 1 of the series built our free anchored VWAP indicator, and any study you can write in thinkScript can become another entry condition.
• Limit the trading hours. Our tutorial on setting custom hours in thinkScript shows how to keep after-hours bars out of a backtester's P&L.
• Test the histogram instead of the dots. Our Squeeze histogram backtester tests momentum swings from the histogram.
• Compare a simpler system. The moving average crossover backtester uses the same AddOrder approach to compare crossovers.