Squeeze Indicator MT5

The Squeeze Indicator is a volatility-based tool that detects potential breakout conditions by analyzing the relationship between two key measures: standard deviation (from Bollinger Bands) and Average True Range (ATR).

Moreover, the indicator is built upon two core volatility-based calculations:

- Calculates the standard deviation of prices over a specified period to assess volatility.

- Computes the ATR over the same period to measure the average range of price movement.

However, the indicator displays two outputs on its window:

- Histogram bars:

1. Gray: No squeeze (normal condition).
2. Green: Breakout expected to the upside.
3. Red: Breakout expected to the downside.

- Squeeze line: A smoothed reference of price average for visualization.

This indicator is useful during consolidations and ranges, helping traders prepare for upcoming explosive moves and anticipating entry points:

• Buy Signal (Long Entry):

- The histogram turns Green (value = 1), this means price volatility has increased and the average price is moving above the center.

• Sell Signal (Short Entry):

- The histogram turns Red (value = -1), indicating a potential downside breakout as volatility expands.

• Neutral / No Trade:

- The histogram is Gray (value = 0), the market is in consolidation or volatility is still low, wait for breakout confirmation.

1/ In the first trading example, the Squeeze Indicator was applied to the GBPJPY M30 chart. The indicator successfully identified a consolidation phase, represented by a gray line at the zero level in the indicator window.

The appearance of green histogram bars signaled a potential bullish breakout, indicating a long entry opportunity for traders. Subsequently, the return of the grey line suggested the market had re-entered a consolidation phase, potentially marking a point to exit long positions.

Later, the emergence of red bars signaled a bearish breakout, indicating a short entry opportunity. This signal proved accurate, as the price declined shortly thereafter, allowing traders to capitalize on the early warning provided by the indicator.

2/ In the second trading example, using the same logic as before, the Squeeze Indicator was applied to the EURUSD Daily chart. Following a bearish movement indicated by red bars, the appearance of a grey line suggested that the market had entered a consolidation phase. During such periods, it is highly recommended to exit existing positions and wait for a confirmed breakout to re-enter, to avoid potential reversals.

Later, the emergence of green bars signaled a bullish breakout, indicating a new long-entry opportunity. This signal was confirmed on the MT5 chart, as the price began to rise, strengthening the upward momentum and providing traders a profitable opportunity.