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Now the "muscle" bone will keep looking at the "muscle_point" helper. Now what we need is for "muscle_end" bone to follow "muscle_point" position. So to do this, select "muscle_end" bone and go to Motion Panel again. Assign Position Constraint Controller to it's Position Transform. Now click on "Add Position Target" and select "muscle_point" helper. Below is an image of what I have in motion panel for "muscle_end" bone.  Almost there. If you move around either "muscle" bone or "muscle_point" helper, the "muscle" bone still doesn't squash and stretch. To make it squash and stretch, select the "muscle" bone. Go to Character/Bone Tools. Bone Tools floating window will pop up. Open "Object Properties" roll out and uncheck "Freeze Length". Under "Stretch" check either Scale or Squash. I usually use Squash as it keeps the volume of the bone. 
Now grab either the "muscle_bone" or "muscle_point" and move it around to see the effect. It should now squash and stretch as you move it around. Now link the "muscle_bone" to "bicep" bone. And link "muscle_point" helper to "forearm" bone. Rotate the "Forearm" bone to see how "muscle_bone" squashes and stretches. At this point you can play with position of the muscle bone and it's point helper to find a good position for it.
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