Signup for our free newsletter:

The "Rubber Band" Effect

Written By Brian Hicks

Posted October 31, 2011

Every time we’ve crossed the upper and lower Bollinger Bands, we’ve snapped back… sort of like a rubber band pulled too tightly.

Take a look at the Dow, for example, using the R-4 Triggers for example.


With the Dow, as an example, I like using a six-month candlestick chart with MACD, DMI, and Williams % Range (W%R).

We were able to call the bottom in the Dow at 10,500 because of the dip below the lower Bollinger Band, an oversold read on W%R, and bullish crossovers on MACD and DMI.

Last week, we were above the upper Bollinger Band with an overbought read on W%R and MACD. And we’re in the process of pulling back.

While it’s best to wait for pullback or bouncing confirmation from MACD and DMI crossovers (in agreement), W%R… and even from candlesticks, you can be certain that as soon as we cross a Bollinger Band, the “rubber band” will soon snap back.

The nice thing about this system is that it can be used with stocks, too. You can only pull the “rubber band” so far before it snaps back.