Methodology for Squeeze strategy usage

Modified on Mon, 21 Aug 2023 at 07:38 PM

The Squeeze strategy focuses on a moment when the price rapidly breaks out down but reverses very quickly.

Example:

The strategy places a limit order for a percentage change defined in the config. The strategy measures the percentage change from a previous candlestick (from its low by default). When a rapid breakout to the limit order occurs, the strategy buys. Further, the strategy places a sell order for a percentage change. In this case, the strategy measures the percentage change from the buy level. After the execution of a sell order, the cycle continues (example in the image below).

Market monitor helps to find an asset for the squeeze strategy by notifications that come to a telegram channel. Monitoring the chart and measuring the percentage change of breakout on your own is handy as well.

The next step is the backtesting to find a valid config. In the case of a new local max of the price, the configs become risky because they worked on a horizontal trend (sideways trend). Fast correction occurs when an asset reaches a growth phase max (with a large percentage change). The historical data of previous fast rises of an asset helps in measuring an approximate percentage change. As soon as there is a new local max of the price, the strategy's work with a less percentage change becomes dangerous. Stop the strategy or adjust the settings. Use the "Start trigger" box as the max buy level to protect the strategy from quick pumps. Define a price above which the strategy wouldn't buy and disable the "%" checkbox.

How to choose a percent for the sell trigger

The most effective percent for the sell trigger is not more than 1/3 of the percent for the buy trigger. So, when the buy trigger is 1.5%, then the sell trigger is not more than 0.5%. Backtesting determines the percent for the sell trigger for each asset individually. A fast fall of an asset price when the sell trigger percent is too high may lead to losses.

In addition to the strategy, the strategy fits for scalping

Define a deposit that suits for work on an asset;
Create two squeeze strategies with buy and sell limit orders that are visible on the screen;
Split sell orders into two equal parts. The first gets a small profit after what it is possible to set a stop trigger on a breakeven level for the second that waits for the zone of significant volatility.
The "Binding" and "Time-frame" are irrelevant, but the strategy updates the order every minute when the 1-minute time-frame is on. It can block a shift of the limit at the wrong time.

These steps simplify trading and save time for creating orders because the s automatically creates an incoming limit order.

Extra tips:

A safe config is a config that worked out for 1-3 candlesticks.
Optimize the config to buy in a low of a candlestick of its time-frame.
The work of the squeeze strategy is "safe" when an asset is in growth. All breakouts reverse, and there is an interest in the asset.
When the price reaches a vital level or a downtrend is on the way, reconfigure the squeeze strategy for a greater percentage change. It avoids a strategy's stuck at the top. In such situations, a rapid correction occurs (with a wide percent of change).
Use the "Once per candle" checkbox on more than 1-minute time-frames.
When an asset is rapidly losing daily volumes and the volatility is greatly reduced, increase the percentage change for buy order or turn off strategies.
Keep an eye on BTC. When BTC approaches the lower level of range/support, traders should expect a loss of interest in altcoins and strong squeezes or dumps of the market.

Test the strategy with small orders, study coins, and change config according to the market situation. A configuration cannot be profitable for a long time.