How to Spot Rubber Band Setups Using Free Charting Tools (part 3 of 3)

Over the past two Fridays, I’ve shown you:

1. The logic behind the “rubber band” setup — a mean reversion trade that triggers when a good stock gets stretched too far down, too fast
2. How to find fundamentally strong stocks using completely free tools

Now it’s time to put the final piece in place: how to actually spot those stretched rubber bands on a chart.

And just like everything else in this series, you don’t need a subscription, software license, or trading degree to do it.

Let me show you how I do it using free online tools.

The Key Idea: Two Standard Deviations Below the Mean

At the heart of this setup is a simple stat:

95% of the time, a stock trades within two standard deviations of its average price.

So when it drops below that range — especially if it’s a fundamentally strong stock — there’s a good chance it’ll snap back. That’s the trade.

To visualize this, you can use Bollinger Bands — a tool that’s available for free on just about every charting platform out there.

Step-by-Step: How to Set It Up (Free)

You can use TradingView — it’s free, easy to use, and web-based.

Once you’re on the site:

1. Search for a stock (any ticker)
2. Click on the full chart view
3. In the Indicators menu, search for Bollinger Bands 
4. Select the default version

That’s it. You’ll now see:

• A middle line (usually the 20-day simple moving average)
• An upper band and lower band that represent two standard deviations from that average

What You’re Looking For

Here’s the setup:

• The stock price dips below the lower Bollinger Band
• The stock passes your fundamental filter we discussed last week
• The chart shows some signs of stabilizing — a pause, a small bounce, a bottoming candle pattern, etc.

If I see that combo, I get interested.

You can even set up alerts in TradingView and other platforms to notify you when a stock crosses below the lower band — so you don’t have to watch charts all day.

Example: What It Looks Like in the Wild

Let’s say a stock like XYZ has been climbing steadily for months. It’s got rising earnings, strong margins, and analysts are upgrading it.

Then one week, some market news knocks it down — hard. It drops 10% in three days.

You pull it up on a chart, and sure enough:

• It just pierced the lower Bollinger Band
• The fundamentals still check out
• And it looks like the panic is fading

That’s when I’d consider jumping in — not because I’m guessing, but because the odds are stacked in my favor.

What This Is (and Isn’t)

This isn’t about calling tops and bottoms.

This is about:

• Finding strong companies
• Waiting for irrational selloffs
• Entering when the math and the setup say “go”

It’s not perfect. But it doesn’t have to be.

You don’t need to catch the bottom tick. You just need enough of the move to make the trade worthwhile — and avoid the ones that don’t deserve to bounce.

Recap: Try It for Yourself

Here’s your full playbook:

1. Use Finviz to screen for strong fundamentals
2. Use Yahoo Finance to double-check the growth and estimates
3. Use TradingView to look for pullbacks below the lower Bollinger Band
4. Optional: Set alerts to catch these in real time

It’s simple. It’s free. And it works — especially when markets are emotional.

If you’ve made it this far in the series, you now have everything you need to start testing this approach for yourself.

Talk soon,
JD
The Rational Trader

P.S. This three part series I shared with you is the same way I pick my green diamond stock. And you ought to see our track record! Click to discover the power of picking stocks the right way!