In the world of technical indicators, none is more obscure, more arcane and more steeped in mystery than the Voodoo Lines indicator. The name itself conjures up images of mystery and the dark arts. John Carter of Simpler Options is a big fan of the Voodoo lines and promotes them directly on his site at this link Voodoo Lines indicator.
Voodoo Lines are also marketed by First Wave Software and according to the site originated from methods pioneered by David Starr. In any case, the Voodoo lines indicator puts a number of line on charts, and the lines represent important support and resistance levels for price action. Like any other tool, Voodoo lines alone will not make you money, but they will provide one more tool in the process.
And speaking of money, the Voodoo lines do not come cheap. They are not bundled into any trading platform and the base price is $997 plus $47 per month ongoing. Its clear from the documentation that the lines are not calculated locally, but are transmitted over the Internet from a server. Its also clear that human interaction is involved in creation of the lines, since they are not available universally for all stocks, rather from a selected sub-group of stocks. Also, there is human activity involved in updating of the lines which accounts for the $47 per month ongoing update charge. Carter indicated in a recent video that the lines do not change over time, but based on the description, historical highs are lows are included in the calculation, so they must change when new historical highs are lows made.
Since I'm too cheap to pay $997 for a technical indicator let alone the $47 ongoing charge, so the Voodoo lines represent a particular challenge for me. In the past, I have been able to reverse engineer some of my favorite indicators (such as Range Bands), but that relied on having the indicator calculated locally, and being able to manipulate the underlying data to understand its affect on the calculations. That clearly won't do for Voodoo lines, so that presents an intellectual challenge, and I love challenges like this.
In any case, John Carter made a call for higher prices in BIDU on Tuesday 1/7/2013. Having found support at the fire line (red) area at 167.44, and a TTM squeeze on the daily charts (not shown) Carter was expecting a move up to the first Snow Line at 182.44 and then a move symmetrical to the prior low-high swing to the second snow line at 191.23. I was able to get positioned at the blue bar by selling the 175/180 PCS for a credit of 2.25. I covered it the next day for 1.70 and pulled out a quick $55 for a total of $4 in commission paid.
Note how quickly the entire move was thrown back. I have seen a lot of that lately with another good example being Chipotle (CMG). Carter made a call on Wednesday for higher prices in CMG. With the stock at about 536, we bought the 525/545 call credit spread for a debit of 10.0. Almost immediately the next day the stock shot up and traded as high as 548 before selling off and closing not far above the breakout point at 538. I was able to close that trade out at 12 for a 2.0 or $200 profit the next day. Its amazing how quickly profits come and go with options and you have to be able to grab them while you can.
I have some ideas how to calculate Voodoo lines for stocks making new all-time highs so I'm going to start with that and see how it goes.
Have a great week ahead.
No comments:
Post a Comment