BBSqueeze Indicator

The BB Squeeze indicator is a technical analysis tool that is used to identify potential market breakouts. It is based on the Bollinger Bands (BB) indicator, which is a volatility-based indicator that consists of a moving average and two standard deviation lines. The BB Squeeze indicator is created by plotting the distance between the upper and lower Bollinger Bands, and it is used to signal a potential breakout when the distance between the bands becomes small or “squeezed”.

What is the BBSqueeze Indicator?

The BBsqueeze Indicator uses Bollinger Band Squeeze to identify Forex trading opportunities, allowing the trader to enter the trend early. The indicator also combines the Keltner channel with the momentum indicator to confirm and filter trades. The contraction of the Bollinger bands indicates an impending large market move, which could be BULLISH or BEARISH. The BBsqueeze indicator, on the other hand, provides BUY and SELL trading signals based on histograms. Not only does the indicator provide entry signals, but it also assists the forex trader in following the trend. The indicator is appropriate for both novice and expert forex traders. New traders can use the histogram to identify BUY and SELL signals, as well as to obtain trend reversal information and exit early. Advanced forex traders, on the other hand, might employ the indicator in complex forex trading methods.

Setting up the BBSqueeze Indicator
Setting up the BBSqueeze Indicator

BBSqueeze Strategy

The indicator displays bullish and bearish histograms in the colors SeaGreen and Magenta, respectively. It also shows the zero line in blue and purple. A BULLISH indication is indicated when the histogram passes the zero line and goes up the SeaGreen histogram. However, forex traders could wait for further confirmation by keeping an eye on the hue of the zero line. Traders could avoid taking positions if the zero line is purple and instead wait for it to become blue. After the histogram and zero-line trading signals are confirmed, forex traders can initiate a BUY transaction. The stop loss could be when the histogram or zero lines change in the opposite direction of the previous low. Similarly, traders can benefit by following the trend and exiting when the color of the histogram or zero lines changes.

If the hue of the histogram turns to magenta, it indicates that the price is entering a negative trend. Traders can open a SELL position with a stop loss above the previous swing high if the presence of the blue zero line is confirmed. Forex traders, on the other hand, can leave when the color of the bar chart or zero lines changes. Profits could be taken by following the trend as long as the histogram is bearish, and the zero line is blue.

Buy Signal

The following could be your checklist for a buy trade:

  • When the histogram bars turn SeaGreen above the zero line.
  • When the zero line turns blue.

Once these events occur:

  • You could open a buy position after you confirm your entry with bullish candlestick patterns.
  • You could set your stop loss just below the nearest swing low.
  • You could set your take profit at the nearest resistance zone, or you could exit trade when the histogram bars turn Magenta below the zero line.
  • For good risk management, I would only consider trades with a risk to reward ratio of at least 1:2.
BBSqueeze Indicator Buy Setup
BBSqueeze Indicator Buy Setup

Sell Signal

The following could be your checklist for a sell trade:

  • When the histogram bars turn Magenta below the zero line.
  • When the zero line turns blue.

Once these events occur:

  • You could open a sell position after you confirm your entry with bearish candlestick patterns.
  • You could set your stop loss just above the nearest swing high.
  • You could set your take profit at the nearest support zone, or you could exit trade when the histogram bars turn SeaGreen above the zero line.
  • For good risk management, I would only consider trades with a risk to reward ratio of at least 1:2.
BBSqueeze Indicator Sell Setup
BBSqueeze Indicator Sell Setup

BBSqueeze Pros & Cons

Pros

  • The BBSqueeze Indicator may help the traders identify potential support and resistance levels.
  • This indicator may inform traders on possible trend reversal zones.

Cons

  • The BB Squeeze indicator can produce false signals, particularly in ranging markets where prices are moving sideways. In these situations, the indicator may suggest a potential breakout, but the price may not actually move in the expected direction.
  • The BB Squeeze indicator is a lagging indicator, meaning that it is based on past price data. This means that it can provide signals after a price move has already started, potentially missing part of the move.

Conclusion

The BBSqueeze is a technical indicator used in financial markets to identify potential trend reversal points. It combines elements of Bollinger Bands and Keltner Channels to create a unique volatility indicator that helps traders spot market squeezes and subsequent breakouts. The BBSqueeze is created by plotting the difference between a Bollinger Band and a Keltner Channel on a chart. When the difference between the two indicators narrows, it is considered a market squeeze and potential reversal point. When the market volatility expands and the difference between the two indicators widens, it signals a potential trend breakout. Traders can use the BBSqueeze in combination with other technical analysis tools and indicators to confirm potential trend reversals and breakouts. It is important to keep in mind that the BBSqueeze is a secondary indicator and should not be relied upon solely for making trading decisions. It’s also worth noting that, like all technical indicators, the BBSqueeze can produce false signals, and it’s crucial to always consider market context and other analysis before making any trades.

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