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Thursday, December 27, 2012

TIS Squeeze Darvas Setup Indicator

On this New Post I will explain the Squeeze Darvas Setup and how to trade it with an Indicator for Ninjatrader

The Name of the Setup is Darvas_Squeeze and the indicators needed are :

  • Squeeze Indicator
  • Darvas Indicator
For the purpose of this explanation I will be using TIS_Squeeze and TIS_Darvas but any general Squeeze and Darvas indicators will work fine.

If you are not sure how a Squeeze indicator works, it is very easy to understand, in fact, if you don't have a squeeze indicator, with just a Keltner and a Bollinger is possible to know when there is a squeeze signal condition :

On the following picture we can see a blue envelope ( Keltner Channel) and a green band ( Bollinger Band ).

When the Keltner is bigger ( containing inside) the Bollinger then there is a Squeeze Signal ( red dot on the Squeeze Indicator at the bottom ).

The rectangles are the Darvas boxes, and these are used to define the breakout zone ;

The way to trade this setup is using bracket orders ;
Buy Stop above the box and Sell Stop below the box.
We can use an offset in ticks, where the orders must be placed from the box ; N ticks above for the Buy Stop and N ticks below for the Sell Stop.

So, the logic to trade this setup is as follows :
  1. Wait for a Squeeze Condition ( Red Dot )
  2. Place Buy Stop over Box + Offset
  3. Place Sell Stop below Box - Offset
  4. If one orders get filled, cancel the other
  5. If no more Squeeze condition ( no more red dots ) and orders are not filled, the trade is cancelled
About the settings to use, the Darvas don't need any input parameter, the only inputs needed are for the Squeeze ( Period, Bollinger Standard Deviation and Keltner Multiplier ).
The period is the same for Keltner and Bollinger.
Some good settings to start with are : a period of 20 , a Keltner Multiplier of 1.5 and a Bollinger Standard Deviation of 2.

Please post any comments, suggestions, and question here...
Also if you have a good combination of settings and want to share them, please post them here...

This setup can be traded using the Combo Indicator TIS_Combo_Darvas_Squeeze