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Most Popular Indicator Ever: Squeeze Momentum Indicator (by Lazybear) - Catching Breakouts Tutorial - YouTube
Channel: Trading Journal
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Hi traders! In today's video, I will show you one聽
of the most popular indicators out there. In fact,聽聽
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it is the most popular indicator in tradingview's聽
public library. It is called the Squeeze Momentum聽聽
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Indicator by LazyBear. Don't worry if it is the聽
first time that you are hearing about it. Even聽聽
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if it is a popular indicator, it is hard to聽
find tutorials about it. So in today's video,聽聽
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I will show you some profitable strategies聽
to trade the squeeze momentum indicator.聽
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We will start the tutorial in a second. But first,聽
I want to thank you guys for your amazing comments聽聽
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on my last video. Since most of you guys preferred聽
my real voice, I will try to use it more often.聽聽
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Before we begin, please don't forget to like聽
and subscribe for more trading tutorials.聽
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Okay, let's start. As usual, we will open聽
tradingview.com. To add this indicator, you have聽聽
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to click on the indicators and strategies icon聽
on the top, and we will go to the public library.聽聽
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The Squeeze Momentum Indicator should be on top聽
since it is the most popular indicator out there.聽聽
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If you cannot find it, you can聽
type it on the search bar above.聽聽
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Feel free to add it to your favorite indicators.
If you are using the dark theme of TradingView聽聽
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like me, you will be not able to see the indicator聽
fully. So I will make some style changes to make聽聽
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it more eye-friendly. To make the changes,聽
you should click on the settings icon next聽聽
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to the indicator. First, I am going to increase聽
the opacity of the bars, so they will be easier聽聽
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to track. And then, I am going to change the聽
crosses you see on the chart to circles, and I聽聽
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will also change their colors. Because right now,聽
they are impossible to see with the dark theme.聽聽
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I will make Color 1 dark blue, and color 2 light聽
blue. Perfect! I think it is way more eye-friendly聽聽
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right now. If you followed these changes, your聽
indicator should look something like this.聽
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Don't worry if you missed anything. Here聽
you can see every change we have made on the聽聽
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settings. Please feel free to take a screenshot.
Okay, let's try to understand this indicator聽聽
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together. We have a bunch of variables on the聽
indicator. We have bright green and light green聽聽
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bars, bright red and light red bars. Also, we聽
have dark blue circles and light blue ones.聽聽
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All of these variables have different meanings. I聽
know it might look complicated now, but actually,聽聽
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it is way more simple than it looks. Basically,聽
The Squeeze Momentum Indicator indicates 2 things:聽聽
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Volatility and momentum.
Let's start with the bars.聽聽
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The bars on the indicator represent the amount聽
of momentum in the market. If the bars are green,聽聽
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it means there is an upwards momentum in the聽
market. And, if the bars are red, there is聽聽
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negative momentum. In our strategy, we will try聽
to trade in the same direction with the momentum.聽
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The second part of the indicator is the volatility聽
itself, which is represented by the dots in the聽聽
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middle. These dots indicate the squeeze. You聽
might be asking yourself, what is a squeeze.聽聽
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Well, in order to understand how squeezes occur,聽
you should understand how markets move first.聽聽
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As you know, markets are not always in a trend.聽
Trends are usually followed by consolidation聽聽
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periods where the price doesn't change much.
In other words, periods of high volatility are聽聽
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usually followed by periods of low volatility.聽
This rule applies to all of the markets and聽聽
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all time frames. And low volatility means that聽
there is a low amount of movement in the market.聽聽
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These periods are called squeezes because it聽
looks like the price is squeezed in a range.聽聽
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There is no clear upwards or downwards聽
trend when the price is in a range.聽
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When the price breaks above or below聽
the range, a new trend is most likely聽聽
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to occur. Because momentum increases with the聽
breakout. The main goal of the squeeze momentum聽聽
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indicator is to catch those breakouts before聽
they happen. In our indicator, squeeze periods聽聽
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are represented by dots. If the dots are dark聽
blue, it means that the price is in a squeeze.聽聽
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When the dots turn light blue, it聽
means a squeeze relief has occurred.聽
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So I believe that this briefing will be enough聽
for trading the squeeze momentum indicator.聽聽
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Now, please let me start by explaining the聽
regular ways to trade the squeeze indicator,聽聽
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and then I will show you how you can聽
increase your win rate while trading it.聽
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According to LazyBear, there are 2 ways聽
to trade the squeeze momentum indicator.聽聽
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The first option is to trade the divergences.聽
Basically, it is the same as the RSI divergence.聽聽
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If the price makes a lower low but the histogram聽
makes a higher low, it indicates a bullish聽聽
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reversal might occur soon. And, it gives a bearish聽
reversal signal, if the price makes a higher high聽聽
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but the histogram makes a lower high.
But I am not going to dive deep into the聽聽
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details of the divergence strategy.
Because according to my backtests,聽聽
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it is not as profitable as the RSI divergence,聽
so I will not explain it in detail to save you聽聽
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time. But feel free to ask your questions聽
in the comments. Also, you can check out my聽聽
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previous video to learn more about the RSI聽
divergences. So let's move to the fun part.聽聽
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The second way to trade the squeeze momentum聽
indicator is to try to catch the squeezes.聽
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In order to catch the breakouts, we will wait for聽
a couple of dark blue dots in a row. Because they聽聽
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indicate that we are in a squeeze. Then, we will聽
wait for the dots to turn light blue. Because it聽聽
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indicates that the volatility is increasing and聽
a breakout might happen soon. When that happens,聽聽
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if the bars are green we will open a long聽
position. We are going to close our position聽聽
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as soon as the bars change their color. So on a聽
long setup, we will open a position once the dots聽聽
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turn light blue, and we will close the position聽
when we see a dark green bar for the first time.聽
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Same way, if the bars are red when聽
we see the bright blue circle,聽聽
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we will open a short position. And we will聽
close our position once the bars turn dark red.聽
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However, it is not so profitable to聽
trade the squeeze momentum by itself.聽聽
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Because it gives lots of false signals if you use聽
it alone by itself. So, we will not open a trade,聽聽
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every time that the circles change color. Let聽
me give some tips to increase the win rate.聽
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First, to confirm that you are in a squeeze,聽
you should look for at least 6 dark blue dots聽聽
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in a row. Otherwise, there will be too much noise聽
on the chart and you will get many false signals.聽
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Second, since it is a lagging indicator, very聽
volatile moves can make you have a delayed entry,聽聽
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and the momentum will be long gone when you聽
enter your position. So open your eyes for聽聽
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huge price changes, and avoid opening a聽
position if you see a really huge candle.聽
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Third, you can use moving averages to filter聽
your entries, as we do with nearly all of our聽聽
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strategies. If the price is above the 200聽
E.M.A. only look to go long. And only take聽聽
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the short entries when the price is below the聽
moving average. But keep in mind that it will聽聽
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also filter some good entries, so it is up聽
to you to decide if you wanna use it or not.聽
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In addition to that, you should never trade聽
without a stop-loss. And you should always聽聽
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know when to exit a trade. I will show you聽
how to use the ATR indicator while setting聽聽
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a stop-loss in a minute. And our exit point聽
will be the first bar with a different color.聽
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Last, but the most important thing to check is聽
the price action. Before opening a position,聽聽
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You should check the support and resistance聽
zones to confirm that you are in a squeeze.聽聽
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Because the squeeze momentum indicator is meant聽
to be used when the price is squeezed in a range.聽聽
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So be sure that the price is in a squeeze.
Feel free to take a screenshot of the rules,聽聽
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so you can check them easily while trading.聽
So let's check some entries together.聽聽
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Here you can see a perfect long example on the聽
chart. Let me explain why it is a perfect entry.聽聽
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You will understand after we check our聽
rules. We will start with our last rule聽聽
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since it is the most important thing to check.
Notice that there is a resistance level here聽聽
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which acted as support previously. And there is聽
also a support level here, which price tries to聽聽
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break below and fails. As you see, the price聽
respected this support level in the past. So,聽聽
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we can confirm that the price is stuck in a range聽
and we can use the squeeze momentum indicator聽聽
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to look for breakouts before they happen.
So let's check the rest of the rules.聽聽
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You can see that there are more than 6 dark聽
blue circles in a row. So you know that the聽聽
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volatility is low now and we will wait for聽
a light blue circle to open our position.聽
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Then, we will check for huge price changes that聽
occurred in the last candles. Since non of the聽聽
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candles are relatively huge to others, we are聽
good to go. And then we will check the moving聽聽
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average to have an idea about the trend. So聽
I will add the 200 EMA to our chart. Perfect!聽聽
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Notice that the 200-period E.M.A. is聽
really close to our support level.聽聽
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This is exactly why checking the long-term moving聽
average is important. Because moving averages can聽聽
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act as support and resistance. We can confirm聽
that the support level is even stronger now.聽
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So, we are good to open a position. We will open聽
our entry as soon as we see a bright blue circle.聽聽
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Which happens right here. Since the bars on the聽
indicator are green, we will open a long position.聽聽
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Because it indicates that, a bullish breakout聽
might happen soon. So, We will enter our position聽聽
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at the opening of the next candle. Remember聽
our next rule. As soon as we open a position,聽聽
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we should set a stop-loss. I will add the ATR聽
indicator to decide the stop-loss level. We will聽聽
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use 2 times the ATR as our stop-loss point.
Since the ATR is 227 at this candle,聽聽
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we will stick with 454. The last thing to decide聽
here is, where we will close our position.聽聽
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We want to keep the position open as long as聽
the momentum is on our side. So we will not聽聽
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close our position as long as the bars on the聽
indicator keep their color. We will exit when聽聽
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we see the first dark green bar. As you see,聽
we closed our position with a nice profit.聽
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Hope you understood how to implement our聽
rules while trading. Even if I want to keep聽聽
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this video short, I really want to show you聽
a short setup too. So please let me share one聽聽
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more example before finishing the video.
Here you can see a perfect short entry.聽聽
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Let's check our rules to understand why it聽
is a good setup. Notice that we are in a聽聽
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squeeze because there are clear support and聽
resistance levels that the price respects.聽
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We should check the moving average to聽
get an idea about the long-term trend.聽聽
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As you see, we are close to the 200 EMA line, but聽
since we are below it, the resistance is strong聽聽
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because there is huge selling pressure near聽
the EMA. So we will look to go short. Before聽聽
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opening a position we should check that there聽
are more than 6 dark blue circles in a row.聽聽
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Since there are more than that, we should wait for聽
a bright blue one. And since non of the candles聽聽
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are relatively huge, there is no fake volatility.
So we will go short at the first light blue聽聽
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circle. Also, as soon as we enter the trade, we聽
will set our stop-loss at two times higher than聽聽
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the ATR. We will keep the position open聽
until the momentum starts to fade away,聽聽
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which happens here, after the bars聽
on the indicator change their color.聽聽
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As you see, this was also a profitable trade. I聽
hope that this example sums up the deal for you.聽
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If used correctly the squeeze momentum聽
indicator can be profitable just like聽聽
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the other indicators out there. But, please聽
remember that trading is a probability name.聽聽
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So be sure to backtest strategies聽
before using them. Please don't聽聽
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trust any strategy you see online聽
without backtesting it yourself.聽
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And if you have any questions, please don't聽
hesitate to shoot them up in the comments section.聽聽
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I try to answer all of the comments when I聽
have time. If you find this video helpful,聽聽
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please consider liking it to show us support.聽
And if you are interested in more trading聽聽
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strategy videos, you can subscribe to our聽
channel. Have an amazing and profitable day.
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