This “Statistics Blueprint” Could Lead You to Your Biggest Profits

Math isn’t everyone’s favorite subject, but it can be the key to your next triple-digit profit.

But fortunately, great technicians like John Bollinger have put the power of math at our finger-tips, making it easy for us to find stocks that have been stretched and are ready to snap-back the other way.

And that’s why today, I’m showing you three ways to harness the power of statistics to score your next big winner.

Here’s what I mean…

Using Statistics to Score Your Next Big Profits

Stocks and stock volatility tend to return to the mean or average.  This is called “mean reversion.” Think it as a stretched rubber band. When a rubber band is stretched and released, it returns to average tension.

Last week we talked about how momentum slows as a stock on the run is ready to go the other way… and return to its average. Stochastics, another mathematical formula, calculates this for us.

This week, I want to show you how Bollinger Bands can be used to predict when a “stretched” stock is ready to return to normal.

Invented by John Bollinger, Bollinger Bands use statistics to determine the probability of a snap back. By applying “standard deviation” to a 21-day moving average, this indicator determines how much a stock’s price has been stretched.  Typically Bollinger Bands use two standard deviations to plot upper and lower bands as shown on the chart of the SPYs below:

As you can see, the shaded area contains most of the price action – 95% of it, to be precise.

When a stock touches or crosses the outer limits of the band, it tends to snap back the other way. This makes sense when you consider that the stock will only be outside of the bands 5% of the time.

The SPY chart shows a number of signals that correctly called a nice directional trade. It also shows a few false signals or consecutive touches before actually snapping back.  For this reason, it’s important to confirm Bollinger Bands with other indicators like MACD, RSI, stochastics, support/resistance, trend-lines and volume.  John Bollinger himself suggests the use of confirming indicators.

The Quiet Before The Storm

Stocks ready for a breakout often act like storms. Things get quiet right before the action. Bollinger Bands also reveal when a stock has gotten quiet and poised for a breakout. Called “The Squeeze”, this is revealed when the bands get closer together than normal. In early October, Bollinger Bands revealed a “squeeze” which was followed by an 11% correction in the market.

Stocks in a squeeze are great candidates for a straddle. When you see a squeeze, consider placing an At-The-Money (ATM) straddle using 60-90 day options.

Here are my top 10 S&P 500 stocks poised for a breakout and good straddle candidates:

Playing Directional Breakouts

Stocks that are making the biggest moves and offering the best profits are also revealed by Bollinger Bands. When a stock makes a strong move outside of the bands, they tend to keep on moving. Check out the strong moves identified on Phillips 66 (NYSE: PSX) below:

On three occasions, PSX broke outside of the band and kept on going, stretching the “rubber band” to its limits.

It’s important to confirm a strong breach of the bands by using other technical indicators as mentioned above. My favorite is above average volume coupled with trend-lines and/or support/resistance.

Here are my top 10 bullish Bollinger Band breakouts in the S&P 500:

As you can see, Bollinger Bands are very versatile and an excellent compliment to your technical analysis arsenal – leading you to the biggest profits.

Now, with 2018 being on track to be the most volatile year since the financial crisis, the last thing you want to do is play a guessing game while executing your trades.

That’s why all of the strategies I design are backed by mathematical and statistical support…

After all, it takes some serious number-crunching to deliver gains like 193.39% on GLD, 195.36% on BKNG, and 270.37% on AMZN…

Best of all, by crunching billions upon billions of data points every single day, I’m able to pinpoint the most profitable opportunities no matter where the markets are expected to head.

So if you’ve let the talking heads scare you out of your next investment, I’ve got the exact move for you.

It’s a simple and undervalued strategy that gives you a shot at making extra cash regardless of what’s going on in the market.

And today, I want to reveal exactly this strategy works… and how you can start using it today to get in position for a series of money doubling – even tripling -opportunities.

Here’s everything you need to know.

Tom Gentile
America’s #1 Pattern Trader

One Response to “This “Statistics Blueprint” Could Lead You to Your Biggest Profits”

  1. I joined up some two months or so ago, you sent me the folder with the monthly laminated sheet but that’s it- nothing as far as i can tell on how to move forward or the weekly choices as advertised- please advice

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