Looking for compression breakout indicator

Squeeze, compression, inside bars - whatever you want to call it, it's tradeable as a break out and I'm looking for an indicator which will compare the Donchian channel height to the ATR (average true range) and give some kind of an alert.

If anyone has heard of one or it's easy to program I'm willing to share my half of the knowledge.

Here's an example:

Bollinger Bands Squeeze ?

Yes, that's a similar effect.

Hi, smikester. I understand that the Donchian channel is simply formed by the highest high and the lowest low of the last N periods so you are locating N-bar-wide consolidation box whose height is low enough compared to the true range (or bar size).

I am so interested in how they will appear on charts that I wrote a test code. This is the latest box in EU M30 and the orange bar shown is where alarm should come. I'd be interested in your thoughts.

Hi Miyagi. Firstly, I must apologise for the delay in my reply.

Yes, your box is just like the sort of indicator or alert to which I am referring. Of course it does not need to be related to Donchian channels but it was observing these Donchian channel compressions that set my thoughts in motion. You can see my train of thought here: http://www.forexfactory.com/showthread.php?t=171552

On the hourly, or lower, time frame these trades can give a high risk/reward ratio. I am constantly looking for low risk/cheap ways into a major trend.

I have found various "box" indicators and alerts on my travels but none seem to pick out boxes which have a low range in comparison to the average true range. The closest I have got is using the Asia session as a range and trading the London break out of that range like this:

On 25th November the daily ATR(68) was about 140 pips. as a guide I know 1/3 of that (say <45pips) is a tight range for the Asia session and likely to produce a high probability break out in London.



In this case it was less than 30pips. TP1 could be 1:1 and the second trade could be trailed using an MA or price action, whatever. In this particular case, .9300 would have been a logical target.

Very similar idea to what is in this thread:

http://www.forexfactory.com/showthre...step+breakouts

No. In fact, quite different. I have read the thread and followed it carefully. Forexhard's strategy is based on highlighting consolidation areas, not necessarily compression areas. This has a quite different R:R expectancy and requires a different trading strategy. The compression areas I wish to define happen relatively rarely.

By the way, Miyagi, I'm very impressed with the Nixie tube avatar. I'm a big fan of Nixie tubes.

These compression areas look very interesting to me, smikester.
They can expand or contract to fit true range. So their sizes change dynamically.

I also understand that you use channel lines as well and so will organize test codes to post the first version later.
It’s pretty simple and won’t take time, and then hopefully I can make changes and improvements.


PS. I never expected someone would find out it’s Nixie tube!

I look forward to it. I suppose time is part of the equation. I don't mean to tell you your job but these compression areas are defined by the period of time they cover. For example, 1 bar which is 0.3 of the ATR means nothing. But 10 to 15 bars which are averaging lower than the ATR starts to mean something is compressed and potentially explosive.

OK, this is my first version.

You can change both channel and true range periods, and alert should come when the channel height is compressed enough compared to the true range.

I hope I understand you correctly, take a look at it and let me know.

That was quick! Thanks, I'll load it now and give it a run...

I can't get the smile off my face! It works great on testing with the strategy tester. Thank you very much. This is something I have been wishing for, for a long time.

A+ for development Miyagi San and of course A+ for Smikester's idea

Mike, pls check your PM's...

hello

i really like ur comments and coding, thanks

pls can u suggest me settings for eur/usd 5 minutes for this indicator pls ?

regards

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€/$ 5 minutes
dc 30
atr 30

yesterday evening nce compression wish i cut my position ....was stop loss a few secs latter .................