Brief Summary
This webinar by Trade The Pool, hosted by Steve, focuses on mastering the use of Bollinger Bands and Keltner Channels in trading. It covers the basics of these indicators, how to identify high-probability squeeze breakouts, precise entry and exit techniques, understanding squeeze momentum, and integrating these concepts into a complete trading system. The session also includes live chart analysis and Q&A.
- Bollinger Bands and Keltner Channels are used to identify low volatility environments and potential explosive breakouts.
- Precise entry and exit techniques are crucial for maximising profit and minimising risk.
- Understanding squeeze momentum and directional signals is key to a successful squeeze trading system.
Introduction to Bollinger and Keltner Bands
The webinar introduces Bollinger Bands and Keltner Channels as essential indicators for traders. Steve shares his personal experiences using these strategies, including successful trades on NE and Coinbase. The learning objectives include mastering the squeeze setup, identifying high-probability breakouts, learning precise entry and exit techniques, understanding squeeze momentum and directional signals, and tying it all together into a complete squeeze trading system.
Understanding the Squeeze Setup
A squeeze occurs when Bollinger Bands contract inside Keltner Channels, indicating low volatility and creating a "coiled spring" effect. When volatility returns, it tends to be explosive. Bollinger Bands act as a volatility envelope, with the middle line being a 20-period moving average and the upper and lower bands representing two standard deviations from the midpoint. Keltner Channels use a 20-period EMA for the middle line, with the upper and lower lines set at 1.5 times the average true range (ATR). Bollinger Bands are more sensitive to volatility changes than Keltner Channels.
Key Components and Squeeze Signals
Bollinger Bands measure price volatility relative to recent trading, while Keltner Channels provide a stable range based on volatility. When Bollinger Bands squeeze inside Keltner Channels, it indicates that recent price action is tighter than the average over the look-back period, suggesting a potential volatility expansion. This setup is particularly useful for swing and options traders due to the potential for minimal risk and large projected targets. The TTM squeeze indicator can be used to identify these setups, with the squeeze being "on" when Bollinger Bands are inside Keltner Channels and "off" when they expand outside.
Why the Combination Works and Squeeze Formation
The combination of Bollinger Bands and Keltner Channels works because Bollinger Bands react quickly to volatility changes, while Keltner Channels provide a stable range. This combination helps pinpoint low volatility periods just before expansion. Traders recognise these patterns, leading to increased interest and volume as the bands tighten and a breakout becomes imminent. During the squeeze formation, Bollinger Bands become narrow, volume decreases, and a series of higher lows may form. Momentum indicators flatten near neutral levels, and multiple moving averages tend to stack on top of each other.
Chart Example: Coinbase Squeeze
The presenter uses a Coinbase chart as an example of a squeeze setup. The Bollinger Bands had been tightening for about three weeks since its inclusion in the S&P 500. The presenter bought the stock near the open, anticipating a breakout from the tight compression. Hallmarks of this setup include Bollinger Bands inside the Keltner Channel, tight flagging, decreasing average true range, price staying within 1-2% of moving averages, and increasing volume on bullish attempts.
The Breakout Stage
The breakout is triggered when Bollinger Bands expand outside the Keltner Channels. The presenter discusses a "squat entry," where the price pops off the top of the Keltner Channel and then comes down to tap into the lower half of the bands. A surge of volume accompanies the breakout. The traditional signal is when the price closes beyond both the Bollinger Band and the Keltner Channel, with momentum indicators curling up. It's important to ensure there is no immediate resistance or support level nearby to allow for an extended move.
Entry Criteria and Trading the Move
Entry criteria include the TTM squeeze being off, a break of both bands in the same direction, and a substantial increase in volume. Momentum should align with the breakout direction, and there should be no major news events that could cause a false breakout. The presenter revisits the Coinbase chart, noting how the price surged through the bands and then rode the Keltner Channel up. The typical duration of the move can vary, but it generally lasts between 10 and 50 time periods on the chart being traded.
Move Characteristics and Management Techniques
The characteristics of the move include sustained directional movement, expanded bands, and volume supporting the move. Momentum indicators stay in trending territory. Management techniques include using the middle line for trailing stops and scaling out at predetermined levels. If the Bollinger Band re-enters the Keltner Channel, it's a red flag.
Exhaustion and Reset
The presenter uses a previous Coinbase squeeze to illustrate exhaustion and reset. The Bollinger Band aggressively re-enters the Keltner Channel, signalling the end of the initial squeeze. The price then rechecks with the middle line. If it rejects, the move is off. The presenter emphasises that this cycle of squeezing and popping is common, and it's important to be aware of where a stock is in this cycle.
Precise Entry and Exit Techniques
Three entry methods are discussed: aggressive, conservative, and momentum. Aggressive entry involves entering immediately on the squeeze-off signal, which carries the risk of false breakouts. Conservative entry involves waiting for a pullback after the initial breakout and entering on the retest of the breakout level with volume. Momentum entry involves entering when momentum confirms the direction, using oscillators like RSI or MACD.
Stop Loss Techniques and Live Chart Analysis
Stop-loss techniques include using the middle of the band, ATR trailing (1.5 to 2 times the average true range), and trailing swing highs and lows. The presenter then engages in live chart analysis, answering questions from the audience and providing insights on various stocks, including SPY, Archer, CRCL, RXRX, AMBA, and others. He also discusses his personal trading strategies and experiences.
Live Chart Analysis and Q&A
The presenter continues to answer audience questions and analyse live charts, including CRCL, RXRX, AMBA, and ACR. He discusses potential entry and exit points, support and resistance levels, and the overall market conditions. He also shares his thoughts on various trading strategies and the importance of patience and planning.
Chart Analysis and Weekend Prep Discussion
The presenter analyses Tesla, discussing potential bottoming patterns and key levels to watch. He also examines MCTV, LAR, LID, AEVA, and MRVL, providing insights on their charts and potential trading opportunities. The session concludes with a discussion about potentially doing weekend prep sessions live on Fridays, involving chart analysis, narrative development, and entry/exit strategy planning.
