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49 Chapter 16: Method I: Volatility Breakout occurs-the precondition is set-and then look for the first move away from the trading range. Trade half a position the first strong day in the opposite direction of the head fake adding to the position when the breakout occurs and using a parabolic or opposite band tag stop to keep from being hurt. Where head fakes arent a problem, or the band parameters arent set tight enough for those that do occur to be a problem, you can trade Method I straight up. Just wait for a Squeeze and go with the first breakout. Volume indicators can really add value. In the phase before the head fake, look for a volume indicator such as Intraday Intensity or Accumulation Distribution to give a hint regarding the ultimate resolution. Money Flow Index is another indicator that can be used to improve success and confidence. These are all volume indicators and are taken up in Part IV. The parameters for a volatility breakout system based on The Squeeze can be the standard parameters: 20-day average and ±2 standard deviation bands. This is true because in this phase of activity the bands are quite close together and thus the triggers are very close by. However, some short-term traders may want to shorten the average a bit, say to 15 periods, and tighten the bands a bit, say to 1.5 standard deviations. There is one other parameter that can be set, the look-back period for the Squeeze. The longer you set the look-back period- recall that the default is six months-the greater the compression youll achieve and the more explosive the setups will be. However, there will be fewer of them. There is always a price to pay it seems. Method I first detects compression through The Squeeze and then looks for range expansion to occur and goes with it. An awareness of head fakes and volume indicator confirmation can add significantly to the record of this approach. Screening a reasonable-size universe of stocks-at least several hundred- ought to find at least several candidates to evaluate on any given day. Look for your Method I setups carefully and then follow them as they evolve. There is something about looking at a large number of these setups, especially with volume indicators, that instructs the eye and thus informs the future selection process as no hard-and-fast rales ever can. Figures 16.2 to 16.6 give you an idea of what to look for.
Part III: Bollinger Bands on Their Own  Figure 16.3 Method I example, Ocean Energy, 100 days. A 10 percent BandWidth is still a Squeeze. Look for the lowest reading in six months, not an absolute level.
Chapter 16: Method I: Volatility Breakout   Figure 16.5 Method I example, Pinnacle Holdings, 100 days. Squeeze, and Squeeze again.
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