Squeeze Scanner

The Squeeze Scanner is based on concepts developed by legendary trader John Carter.  It uses a Keltner Channel and a Bollinger Band.  When the Bollinger band pulls inside the Keltner channel, the scanner generates a “BUY” signal.  This does not mean you should buy.  This is just a state that indicates a squeeze is underway and you should expect an explosive movement outside the consolidation area.

A Keltner Channel is formed by using a moving average and taking the ATR and multiplying it by a factor and adding and subtracting it from the moving average.  Carter used a 20 period SMA and a multipler of 1.5.

A Bollinger Band is also based on a moving average.  Instead of using an ATR band, the Bollinger band adds and subtracts a standard deviation of the movement over the MA period, multiplying by a factor (usually 2.0), then adding and subtracting from the MA.

Since both indicators are based on a moving average, we use the same MA settings for both and compare the band widths.

The Squeeze Scanner also supports a concept of a narrow range candle.  If a candle’s range (high-low) is the smallest in the past N candles, this is considered a narrow range candle.  If a NR candle is detected, the scanner produces a “SELL” signal.  Again, this does not mean you should sell. It’s just a notification that price is tightening up even more.

If neither a squeeze or NR candle is detected, the signal shows “NEUTRAL”.