What is a squeeze momentum indicator and how does it work for Bitcoin?

The Squeeze Momentum Indicator helps Bitcoin traders spot consolidation phases and anticipate breakouts by comparing Bollinger Bands and Keltner Channels.

Jul 05, 2025 at 07:32 pm

Understanding the Squeeze Momentum Indicator

The Squeeze Momentum Indicator is a technical analysis tool used by traders to identify potential breakout opportunities in financial markets, including cryptocurrencies like Bitcoin. It was developed by John Carter and is widely used among active traders who seek to capture volatility expansions after periods of consolidation.

This indicator combines two popular tools: Bollinger Bands and Keltner Channels. When both are plotted together, they provide visual signals about whether the market is in a state of contraction (squeeze) or expansion (volatility breakout). The key idea behind the squeeze momentum indicator is that when price action is compressed between these bands, it often precedes a strong directional move once the price breaks out.

Important: In the context of Bitcoin trading, understanding this indicator can help anticipate large price swings, especially during times of low volatility.

---

How the Squeeze Momentum Indicator Works

At its core, the squeeze momentum indicator measures whether the Bollinger Bands are currently inside the Keltner Channel, which indicates a squeeze condition. Here's how it works step-by-step:

• Bollinger Bands measure volatility by plotting two standard deviations above and below a moving average.
• Keltner Channels use the Average True Range (ATR) to determine the channel width around an exponential moving average.
• When the Bollinger Bands contract and fall entirely within the Keltner Channel, it signals that volatility is low and a breakout may be imminent.
• Conversely, when the Bollinger Bands expand beyond the Keltner Channel, it suggests that volatility has increased, and a strong trend may be underway.

Traders monitor these conditions using histogram bars on the indicator. Red bars indicate a squeeze, while green bars signal a release of the squeeze, potentially signaling the start of a new trend.

---

Using the Squeeze Momentum Indicator for Bitcoin Trading

When applied to Bitcoin, the squeeze momentum indicator becomes particularly useful due to the asset’s inherent high volatility and frequent consolidation phases. Here's how traders interpret it:

• Red Bars Appear: This means that the Bollinger Bands have moved inside the Keltner Channel, suggesting that Bitcoin is in a consolidation phase. Traders watch closely for a breakout.
• Green Bars Emerge: Once the red bars turn green, it implies that the squeeze has released and volatility is expanding. This is typically when a significant price movement begins.
• Bar Height Matters: The height of the green bar reflects the strength of the breakout. A taller green bar suggests a stronger momentum.

It’s crucial to combine this with other indicators like volume, RSI, or MACD to confirm the direction of the breakout since the squeeze itself does not indicate whether the move will be bullish or bearish.

---

Setting Up the Squeeze Momentum Indicator on Trading Platforms

To apply the squeeze momentum indicator to Bitcoin charts, follow these steps:

• Open your preferred trading platform such as TradingView, MetaTrader, or any crypto-specific charting software.
• Go to the indicators section and search for “Squeeze Momentum Indicator” or “John Carter Squeeze.”
• Add it to your chart. By default, it should appear as a histogram at the bottom of the screen.
• Ensure the settings match the standard configuration: Bollinger Bands set at 20-period SMA with 2 standard deviations, and Keltner Channels using a 20-period EMA and 1.5 ATR multiplier.
• Apply it to your Bitcoin price chart and observe the color and height of the bars.

Once properly configured, you’ll begin to see patterns where the indicator aligns with actual price movements in Bitcoin.

---

Interpreting Signals in Real Bitcoin Charts

Let’s walk through how the squeeze momentum indicator might look during real Bitcoin trading scenarios:

• Consolidation Phase: During sideways movement, red bars appear, indicating that volatility is contracting. This is a common occurrence after sharp moves up or down in Bitcoin prices.
• Breakout Begins: As soon as the first green bar appears, it signals that the squeeze is releasing. At this point, traders may look for entry points based on candlestick patterns or volume surges.
• Momentum Confirmation: If subsequent green bars grow taller, it confirms increasing momentum. Traders may hold positions longer if the indicator continues to show strong momentum.
• Sell Signal? While the indicator doesn’t directly give buy/sell signals, prolonged green bars followed by a return to red could suggest a reversal or exhaustion of the current trend.

Remember, no single indicator should be used in isolation. Always cross-reference with other tools before making decisions.

---

Frequently Asked Questions

Q: Can the squeeze momentum indicator be used for altcoins as well?

Yes, the squeeze momentum indicator is applicable to all tradable assets, including altcoins like Ethereum, Litecoin, and others. However, it tends to perform better in more liquid and volatile markets like Bitcoin.

Q: Is the squeeze momentum indicator lagging?

While it uses historical data and can exhibit some lag, its primary function is to detect shifts in volatility rather than price direction. Therefore, it's considered more of a leading indicator in terms of volatility anticipation.

Q: What timeframes work best with the squeeze momentum indicator for Bitcoin?

Most traders use it on hourly or daily charts for swing trading. Shorter timeframes like 15-minute or 5-minute charts can generate too many false signals, especially during choppy market conditions.

Q: Does the squeeze momentum indicator repaint?

Some versions of the indicator, especially custom scripts, may repaint depending on how they’re coded. Always verify the source and ensure you're using a non-repainting version for accurate backtesting and live trading.