The reason for the second condition is to prevent the trend trader from being "wiggled out" of a trend by a quick move to the downside that snaps back to the "buy zone" at the end of the trading period. Note how, in the following chart, the trader is able to stay with the move for most of the uptrend , exiting only when price starts to consolidate at the top of the new range.
Note, however, that counter-trend trading requires far larger margins of error, as trends will often make several attempts at continuation before reversing. As for the stop-loss points, putting the stop just above the swing high will practically assure the trader is stopped out, as the price will often make many forays at the recent top as buyers try to extend the trend. By using the volatility of the market to help set a stop-loss level, the trader avoids getting stopped out and is able to remain in the short trade once the price starts declining.
A squeeze occurs when the price has been moving aggressively then starts moving sideways in a tight consolidation. A trader can visually identify when the price of an asset is consolidating because the upper and lower bands get closer together. This means the volatility of the asset has decreased. After a period of consolidation, the price often makes a larger move in either direction, ideally on high volume. Expanding volume on a breakout is a sign that traders are voting with their money that the price will continue to move in the breakout direction.
When the price breaks through the upper or lower band, the trader buys or sells the asset, respectively. A stop-loss order is traditionally placed outside the consolidation on the opposite side of the breakout. Here is a brief look at the differences, so you can decide which one you like better. One technical indicator is not better than the other; it is a personal choice based on which works best for the strategies being employed.
Traders can also add multiple bands, which helps highlight the strength of price moves. Another way to use the bands is to look for volatility contractions. Carter basically compares true range volatility with directional volatility. Therefore, it is not necessarily a low volatility scenario, but a situation that occurs in consolidating or sideways markets.
Carter then validates these setups by using a 13 bar momentum period. Consolidation squeeze: Occurs when the Bollinger Bands narrow in width, moving inside the Keltner channels range bound market. Full squeeze: Occurs when both of the above scenarios apply at the same time, i. For the Bollinger Squeeze, we want low volatility but not minimum when compared to the bar lookback period. By default, the threshold is set to 1.
By increasing this value, the low volatility definition will become more stringent, effectively delivering fewer low volatility setups. All of the above squeeze indicator breakouts must be aligned by two momentum periods, 10 and 25 bars. Also, in order to eliminate distortions from the lookback period and reduce noise signals , the Balanced Momentum calculation is used Finally, the squeeze indicator breakouts have to confirmed by price action, i.
Thrust Bars.
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