Squeeze Momentum: Bollinger Bands inside Keltner Channels

What it measures

Squeeze Momentum detects periods when Bollinger Bands have contracted entirely inside Keltner Channels — volatility compressed below its own normal level — and pairs that with a momentum histogram to say which way the release is likely to break.

The squeeze itself is a timing tool. The histogram is the directional one.

The reason the two band systems can be compared at all is that they measure volatility differently: Bollinger from the dispersion of closes, Keltner from the average range of bars. Bands contracting inside channels means closes have clustered while bars have not shrunk as much, which is the signature of a market coiling rather than simply going quiet.

How it is calculated

These are the steps Basis performs, verified against the published definition.

1. 1

   Compute Bollinger Bands and Keltner Channels over the same period. The original uses a simple average of the bar range for the Keltner width rather than ATR.

2. 2

   A squeeze is on when both Bollinger bands sit inside the corresponding Keltner bands.

3. 3

   For momentum, detrend the close against the midpoint of the recent range and the period average, then fit a linear regression to the result.

Settings

Twenty periods with a Bollinger multiplier of 2 and a Keltner multiplier of 1.5 is the original. Raising the Keltner multiplier makes squeezes rarer and more meaningful; lowering it produces a squeeze on almost every quiet stretch and destroys the signal. The two multipliers only mean something relative to each other, so changing one without the other is what usually makes a copied setting behave unexpectedly.

How to read it

• A squeeze turning off is the event. While it is on, the market is coiling and there is nothing to trade.
• The histogram’s sign at the moment of release indicates the likely direction; its slope indicates whether that pressure is building or fading.
• A long squeeze produces a larger release than a short one, in general — compression has to go somewhere.
• The histogram is a regression fit rather than a simple difference, so it turns before it crosses zero — the slope changing is the earlier of the two events.

Where it misleads

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