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Trading Opportunity

Rising trend channel and price near the bottom of the channel
Theory: The value of a stock often moves in a wave-like pattern. When a company presents positive news, or the market outlook changes to a positive direction, often more of the same follows. When this happens, there also is a tendency to focus more on the positive news and less on the negative, or for the news to be interpreted more positively. A stock that is in a rising trend channel can therefore be expected to rise further within this channel. Often the stock will in the short term move up and down within the channel. The upside potential is therefore bigger when the price is at the floor of the channel, than when it is near the ceiling. When the price is near the floor of the channel, this indicates a rise for both the short and longer term. Furthermore, one has the possibility to set a tight stop loss when the price breaks down through the floor of the channel.

Score: The closer the price is to the floor of the trend channel, and the higher the quality of the trend channel, the higher the score. A recent strong price drop, such that RSI is low, also contributes to a higher score. A positive volume balance and a strong correlation between volume tops and price tops also is positive. Sell signals from formations and close to resistance levels decrease score.

Buying price: Is set to the floor of the trend channel and a little above (about 15% of the trend height).

Price target: Is set to the ceiling of the trend channel and a little below (about 20% of the trend height). NOTE FROM TN: VIDERE FORKLARING HER PAA NORSK SKJOENNTE JEG IKKE NOE AV We have chosen to use the level of the ceiling the day after, instead of calculating the price level of the ceiling after the indicated time horizon. WE do this because the price, especially when the trend is nearing its end, often not goes all the way up to the ceiling of the trend. Often the ceiling of the day after will be at the middle or floor of the trend after the indicated time horizon.

Stop loss: Is set just below the bottom of the trend channel.

Time horizon: Based on statistics from 1996-2004 and the stock's volatility characteristics, a time horizon is calculated for how many days it will take on average to complete a price movement equal to the movement from buying price to price target.


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