Theory:
As traders, we often find ourselves needing to gauge whether the market is trending or simply consolidating. One effective method involves comparing the standard deviation to the average true range. Here’s how it breaks down:
- If the standard deviation is greater than the average true range, the market is likely trending.
- If the standard deviation is less than the average true range, the market is likely consolidating (or ranging).
This is where the Squeeze Indicator comes into play. When the indicator reads zero, it signals that the market is in a "squeeze" mode, indicating consolidation. Conversely, when the value deviates from zero, it compares the median price with the average close. If the median price is above the average, it indicates an upward trend; if below, it suggests a downward trend. Using the median helps filter out excessive signals, providing a clearer picture.
Usage:
The colors—or lack thereof—on the Squeeze Indicator can serve as valuable signals for your trades.
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