If the game is not properly registering notes and chords as you are playing them, first check to make sure the string mute is engaged on the Squier by Fender Stratocaster Guitar and Controller. When the string mute is engaged, the strings will be "muted" in sound and will help to stabilize the signal sent from the controller to the game console. It is suggested that the string mute always be engaged and that players use a guitar pick (picks sold separately) when playing Rock Band 3 to ensure optimal performance.
If you are still experiencing issues with the game registering notes and chords as they are played, you may want to check to see the instrument itself is properly setup and that the strings, particularly the high E string (the bottom string), is the correct distance from the pickup. To learn more about how to setup your instrument, please view the Squier by Fender Stratocaster Guitar and Controller Setup Guide
Lastly, ensure that the strings you are using are not corroded. Over time strings become corroded due to use and moisture from your fingers. When this happens it can cause the pickup and the sensors to not register the notes being played. To learn more about the guitar strings on your instrument, please view the Squier by Fender Stratocaster Guitar and Controller Setup Guide