Squeeze Momentum Indicator Strategy [LazyBear + PineIndicators]

The Squeeze Momentum Indicator Strategy (SQZMOM_LB Strategy) is an automated trading strategy based on the Squeeze Momentum Indicator developed by LazyBear, which itself is a modification of John Carter's "TTM Squeeze" concept from his book Mastering the Trade (Chapter 11). This strategy is designed to identify low-volatility phases in the market, which often precede explosive price movements, and to enter trades in the direction of the prevailing momentum.

Concept & Indicator Breakdown
The strategy employs a combination of Bollinger Bands (BB) and Keltner Channels (KC) to detect market squeezes:

Squeeze Condition:

• When Bollinger Bands are inside the Keltner Channels (Black Crosses), volatility is low, signaling a potential upcoming price breakout.
  
• When Bollinger Bands move outside Keltner Channels (Gray Crosses), the squeeze is released, indicating an expansion in volatility.
  

Momentum Calculation:

• A linear regression-based momentum value is used instead of traditional momentum indicators.
  
• The momentum histogram is color-coded to show strength and direction:
  
• Lime/Green: Increasing bullish momentum
  
• Red/Maroon: Increasing bearish momentum
  

Signal Colors:

• Black: Market is in a squeeze (low volatility).
  
• Gray: Squeeze is released, and volatility is expanding.
  
• Blue: No squeeze condition is present.
  

Strategy Logic

The script uses historical volatility conditions and momentum trends to generate buy/sell signals and manage positions.

1. Entry Conditions

Long Position (Buy)

• The squeeze just released (Gray Cross after Black Cross).
  
• The momentum value is increasing and positive.
  
• The momentum is at a local low compared to the past 100 bars.
  
• The price is above the 100-period EMA.
  
• The closing price is higher than the previous close.
  

Short Position (Sell)

• The squeeze just released (Gray Cross after Black Cross).
  
• The momentum value is decreasing and negative.
  
• The momentum is at a local high compared to the past 100 bars.
  
• The price is below the 100-period EMA.
  
• The closing price is lower than the previous close.
  

2. Exit Conditions

Long Exit:

• The momentum value starts decreasing (momentum lower than previous bar).
  

Short Exit:

• The momentum value starts increasing (momentum higher than previous bar).
  

Position Sizing

Position size is dynamically adjusted based on 8% of strategy equity, divided by the current closing price, ensuring risk-adjusted trade sizes.

How to Use This Strategy

Apply on Suitable Markets:
Best for stocks, indices, and forex pairs with momentum-driven price action.
Works on multiple timeframes but is most effective on higher timeframes (1H, 4H, Daily).

Confirm Entries with Additional Indicators:
The author recommends ADX or WaveTrend to refine entries and avoid false signals.

Risk Management:
Since the strategy dynamically sizes positions, it's advised to use stop-losses or risk-based exits to avoid excessive drawdowns.

Final Thoughts

The Squeeze Momentum Indicator Strategy provides a systematic approach to trading volatility expansions, leveraging the classic TTM Squeeze principles with a unique linear regression-based momentum calculation. Originally inspired by John Carter’s method, LazyBear's version and this strategy offer a refined, adaptable tool for traders looking to capitalize on market momentum shifts.