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THE MARKET WHISPERER 32 3

Trading the QQQ

In the chapter detailing indicators, we learned the importance of using
Bollinger Bands. We also learned that when a stock price reaches the
upper band, it is in a state of overbought territory and must return down.
By contrast, when it drops to the lower band, it is in oversold territory and
there is a strong chance of it retracing upwards.

We also learned that you need to define the band data in your trading
platform to calculate 10 periods and a standard deviation of 1.5, which
means that the Bollinger Bands will be calculated according to stock’s
volatility over the previous ten trading days. The mathematical significance
of a 1.5 standard deviation is that 90% of the stock’s movement will be
caught between the two bands.

Based on the above, we should be able to assume that a stock or ETF
which moves beyond the boundaries of the bands will return to these
boundaries. Here is an amazing trade method which takes advantage of
this premise:

Daily Chart for NASDAQ 100 ETF – QQQ