Butterworth Cloud + Squeeze (Upper)

The Butterworth Squeeze Cloud – Simple Guide

The Butterworth Cloud is a volatility + trend structure indicator that shows when the market is contracting (coiling) or expanding (breaking out) using a smoothed trend line and dynamic volatility bands.

It is designed to be easy to read visually while giving very advanced information about volatility behavior.

1. What the Butterworth Cloud Actually Measures

The indicator builds three things:

1. A smoothed trend line (Butterworth line)

This filters out noise better than a normal moving average.

When price is above it → bullish bias

When price is below it → bearish bias

When it is flat → ranging market

2. Volatility bands around the trend line

These form the “cloud.”
The cloud expands or contracts depending on volatility.

3. Color signals that show what volatility is doing

Cyan → Contracting (squeezing)
Market energy is tightening. Moves become more likely.

Magenta → Expanding (releasing)
Market is breaking out or trending.

Gray → Neutral
No strong compression or expansion.

This gives a visual map of volatility shifts, similar in concept to Bollinger squeezes, but much smoother and more reactive.

2. How to Read the Cloud at a Glance
A. Contracting Cloud (Cyan)

This signals volatility compression:

Market is coiling

Price is getting tighter around the trend line

Breakouts often follow contraction periods

The longer the cloud stays cyan, the larger the potential move afterward.

B. Expanding Cloud (Magenta)

This signals volatility expansion:

Trend activity increases

Strong directional move is underway

Expansion often begins right after a squeeze ends

Great for:

Trend continuation entries

Avoiding counter-trend trades into strength

C. Neutral Cloud (Gray)

Mixed or unstable volatility.
Often a transition zone, early chop, or slowdown.

3. How Traders Use the Butterworth Cloud
1. Spotting Squeeze → Breakout Cycles

This is the most common use.

Look for cyan contraction

Then wait for a switch to magenta

Combine with price breaking above/below structure

This setup often predicts high-momentum moves.

2. Confirming Trend Strength

Longs are higher probability when cloud is magenta & expanding upward

Shorts are higher probability when cloud is magenta & expanding downward

Avoid trading against expansion unless mean-reverting intentionally

3. Avoiding Chop

If the cloud flips:

cyan → magenta → cyan → magenta
within a short period, the market is choppy.

This helps you stand aside and avoid unnecessary losses.

4. Using the Bands for Targets

The Butterworth Cloud also includes:

Upper band

Lower band

Midline (the Butter line)

Common usage:

Long take profit at upper band

Short take profit at lower band

Mean reversion take profit at midline

Because the bands track volatility, these targets adapt to market conditions.

4. Why Use Butterworth Instead of Standard Indicators?

The Butterworth Cloud has several advantages:

1. Noise filtering

It reduces random spikes better than an EMA or SMA.

2. Cleaner squeeze detection

Unlike Bollinger Bands, it avoids overreacting to single candles.

3. Earlier expansion recognition

Especially in “EARLY” mode, it detects momentum bursts as soon as they start.

4. Works on any timeframe including seconds

Crypto scalpers especially benefit from this.


Cyan = Squeeze (volatility contracting) → market building pressure

Magenta = Expansion (volatility releasing) → breakout or trend

Use cyan → magenta transitions to detect new moves

Use bands for natural take-profits (upper for longs, lower for shorts, midline for reversions)

Works on all markets and timeframes

Very clean representation of volatility behavior