Page 328 - THE MARKET WHISPERER

324 PART 10 - Winning Trades

For four months, I wrapped the daily chart for QQQ (known as the Qs)
with Bollinger Bands according to the definitions above. Notice how the
bands expand or contract as the Qs’ volatility increases or decreases. You
can see how the bands “wrap up” most of the Qs’ movement. Notice also
that every time the Qs break the bands, they return.

SMART Hedge funds use similar strategies. The advantage of the Qs
MONEY for hedge funds is in the large volume, which allows reliable
entries and exits with large sums of money.

Strategy Label: Daily Pullback for QQQ
• When to buy? When the Qs drop beneath the lower band
• Indicator: Bollinger, 10 periods, SD 1.5 (standard deviation)
• Buy point: Buy the day after the closing price was lower than the bottom

Bollinger Band. Buy the ETF at the opening price of the next trade day
ONLY if the opening price is still lower than the bottom band.
Why do we NOT want to buy at the previous day’s closing price? Buying on
the day after the first drop is meant to ensure that hysteria has passed

and the dust has settled. During periods of hysteria, the opening price

of the second day is likely to be far beneath that of the first day’s close.
On the Qs chart, five buy points which uphold these criteria are marked
“B.”
• Sell point: Sell immediately when one of the following conditions
appears:
1. At the end of any day of trading when the NASDAQ QQQ closes higher

than your buy price (even if that is the same day on which you
bought); OR
2. At the end of 20 trading days (one month).
• NOTE: as long as a trade is open, do not enter another trade. Close the
open one first. The purpose is to prevent a large loss during periods of

extreme hysteria when the market may not “return” as anticipated.
• Exercise: in the Qs chart, analyze the buy and sell points according to

the rules we learned. You will find that we have a 100% success rate. In
four of the five instances, the sell point occurred at the end of the same

day that the buy was made, and in one case, we were forced to wait for

five trading days.
• Outcomes: in the three years during which I checked this strategy,

January 2005 to end 2007, I documented 45 events in which the
NASDAQ QQQ provided buy opportunities according to the strategy