Once in awhile, one particular strategy will match up with one particular stock, and it will repeat, and repeat. I like to play Squeezes, an idea I learned from John Bollinger, and his Bollinger Bands. Basically, while price tends to be mean reverting (remember the bell shaped curve from statistic class?), volatility is extreme reverting (tends to bang back and forth from explosive long-range days to quiet narrow-range days.) On weekly charts, I use a 15-week EMA setting for the BB bands, and on the daily charts, I use the default 20-day.

In practice the idea is simple, price undergoes a period of narrow-range, or quiet bars. Then pressure builds up, and price explodes in one direction or the other (often triggered by a news event, or some fundamental action). The trick of course, is to get the direction right and I look to the indicators for help. See the the higher low on the weekly MACD-H? In any case, tight stops, or hedging is a good idea. Once a Squeeze sets up, the subsequent move can be extreme. These days, the market’s hyper volatility has made Squeezes much less common. However, I ran across SMG, a stock that seems to live by the Squeeze. It’s setting up now on the weekly and daily charts, a sure sign of some sort of big move in one direction or the other–earnings maybe?. A trader has several options–take a small position now and add to it as the Squeeze progresses, buy an option straddle–call and a put–or wait for the move, and then enter on a pullback. In any case, SMG has built several weeks of base, the BBs are tightening, and we’re going to rock soon.