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Per our analysis of MGW from last month, recall that we discussed how this stock was setting up as a chart-nerd’s dream. Essentially this little beauty has been following all of its technical cues more or less to a tee. Take a moment to reflect on what the chart is showing you. You may notice that as of recently the volatility has dried up and is more or less trading sideways until recently. This can been seen by the squeeze of the Bollinger bands. What is a Bollinger band you ask? Good question. The Bollinger band plays some of my favourite music. My favourite recordings by them include the squeeze followed by the breakout. Oh, the other known definition of a Bollinger band is tracking its standard deviation over a time period to show how volatile it is. Simply put, the narrower the bands, the less volatile. The wider the bands, the more drastic price fluctuations. Back to the squeeze though. Typically when you encounter squeezed Bollinger bands it implies an impending breakout (up or down). In this case we say it go up.
A squeeze of the Bollinger bands especially when trading sideways as in MGW allows you to place a tight stop in the event the prices start to drop and fall out of the lower band. On the flip side, it can assist you in finding an uptrend breakout, such as when the prices ride or exceed the upper Bollinger band. Note that using the Bollinger band on its own is not enough to determine that there is a breakout. You must align the bands with other indicators such as the MACD or RSI indicators we had talked about last month.
Maple Leaf Green World Inc (TSXV:MGW)