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Technical Trading Secrets

Do This Before You Buy Anything

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I'm just about to issue a hot new trade I've been working on...

This past Monday, I told readers the sell-off in shares of Finish Line (NASDAQ: FINL) was overdone. The stock was selling with an absurd PEG ratio of 0.82 with a price-to-sales ratio of 0.81.

Downside looked limited here, I explained, as the stock now traded sharply under the lower Bollinger Band with an extremely oversold read on Williams % Range.

There were even disturbing spikes in MACD and DMI we know wouldn't last.

A turnaround was imminent.

Buy it now, I said.

FINLchart1040512

That was Monday morning.

Twenty-four hours later, with a long-legged doji confirming change of trend, the stock began its expected turnaround...

FINL chart2

It was that easy.

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“Good call on FINL, got in and am up 30% so far,” a satisfied reader shared on our message board.

It's a simple system that actually works. And it can be done again and again with just five indicators:

  • The penetration of the upper or lower Bollinger Bands on a six-month candlestick chart can indicate that conditions are wildly overbought or oversold. This is Step 1.

  • Step 2: Always look at the read on Williams % Range (W%R). W%R is the ultimate momentum indicator that signals oversold and overbought conditions. W%R shows an overbought condition with a numerical range read of 0% to 20%. Oversold conditions are measured with a numerical range read of 80% to 100%.

  • Step 3: Always look to see if the candlesticks are indicating possible turnaround. With Finish Line, that long-legged doji was our confirmation of trend change. Dojis especially appear at times of market indecision and have called key reversals in indices and individual stocks.

  • Step 4: While not always necessary, take a look at the moving average convergence divergence (MACD) and the directional movement indicator (DMI). When these two agree, it can be used as a “backup” trend indicator.

The trick to making easy money with the system is to take the money and run.

As I just told my readers: “All we want to do with this trade is wait for the coming bounce and get out. That's it.”

Here's another example.

Check out Kodiak Oil & Gas (NYSE: KOG)...

Notice that every time the upper or lower Bollinger Bands are penetrated — or even just touched — coupled with an overbought or oversold W%R read, the stock has bounced:

Kodiak Oil chart

Remember the Carnival (NYSE: CCL) Cruise Line disaster back in January?

Check out what happened once the stock gapped under its lower Bollinger Band back in January 2012...

It bounced just as we expected, despite all the negative publicity surrounding Captain “I fell into the life boat” and his victims.

CCLchart040512

At the time, I told readers this was a perfect crisis opportunity, one we shouldn't pass up:

The sell-off took the underlying stock well below the lower Bollinger Band. The "rubber band" was pulled too tight... and we had confirmation from W%R that we were in deep oversold territory. It's a classic R-4 Trigger setup.

A day later, we were out of half the position with a 34% gain.

To think I'm finding great winning trades like this every single week...

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Ian Cooper

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Ian Cooper has been trading stocks and options for 12 years. He contributes options, stock, and energy commentary to Wealth Daily, Wealth Wire, and Options Trading Pit. He's the Coach behind Options Trading Coach, a beginner's guide on how to trade options. Ian teaches thousands of loyal subscribers the many ways to be profitable from options rather than simply buying stocks alone. For more about Ian, take look at his editor's page.


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