Here Are 20 Chances to Double Your Money

Massive Monday movements in stocks are a big clue that we're in for another week of - you guessed it - volatility.

It might cost some folks sleep, but I really like these big swings. It's tough to make money if stocks aren't moving either way.

Yesterday, I told you all about Bollinger bands - a simple statistical tool that can tell you when stocks are about to snap back to higher highs or lower lows.

Today, we're going to apply those tools - kind of like a filter - to a list of stocks to find exactly which ones are poised to move up and down.

Picking a winner from these lists is like shooting fish in a barrel...

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Bollinger Band Bulls and Bears

To quickly recap, Bollinger bands are a tool developed in the late 1980s by a guy I know named John Bollinger. The bands give you an excellent at-a-glance idea of price and volatility over a given time frame.

Here's what they look like on a chart of the SPDR S&P 500 ETF (NYSEArca: SPY). There's just a huge amount of price action contained within the bands.

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double money

Visually, the bands sit "on" the chart, widening when the price swings widely and narrowing when prices are consolidating. That consolidating is the key - it's what can lead to a breakout much higher or a breakdown to lower prices. Either way, you make money.

Bollinger believed that price tends to revert to the mean; if the price "stretches" too far down, it will "snap" back up - or vice versa - like a rubber band.

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This chart of Phillips 66 (NYSE: PSX) shows how this works. Each one of the arrows represents an instance where the "snap" brought a chance to bring in huge profits - in this case, on the downside, with puts.

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See, it's in the "snap!" that some of the biggest, juiciest profits are made.

So let's look at some stocks I've isolated that are poised to break out and break down.

Here are the 10 most "Bollinger bearish" stocks right now. Look at how narrow the "hi-low" ranges are getting. I'd play the imminent move to the downside with at-the-money puts running out a month or so from now.

Bollinger

And here are the 10 most "Bollinger bullish" stocks my system hit on. Play these impending breakouts with at-the-money, near-dated calls.

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The key takeaway here - aside from 20 chances to double your money - is that technical analysis, like Bollinger bands, has a place in a pattern trader's (that's me) toolbox. You can trade on seasonality, for instance, and still use a tool like Bollinger bands to help narrow down your choices.

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About the Author

Tom Gentile, options trading specialist for Money Map Press, is widely known as America's No. 1 Pattern Trader thanks to his nearly 30 years of experience spotting lucrative patterns in options trading. Tom has taught over 300,000 traders his option trading secrets in a variety of settings, including seminars and workshops. He's also a bestselling author of eight books and training courses.

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