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Strategies & Market Trends : Market Gems:Stocks w/Strong Earnings and High Tech. Rank -- Ignore unavailable to you. Want to Upgrade?

To: scuuder who wrote (12757)	8/9/1998 5:44:00 PM
From: LastShadow	Read Replies (1) \| Respond to of 120523

Trading Channels At marketgems.com you will find an example of the trading channels for AOL between January and last Friday. Trading channels are made up of the primary trendline and a parallel line that encompasses the range the stock trades in over a given period. These are valuable to understand as it can help determine entry and exit points, as well as whether a given day's high or low is penetrating this boundary. In the AOL example, the stock rose from $45 to $80 (split adjusted) between January and the end of April. A line is drawn connecting the primary lows over that period such that no low in between the chosen points penetrates the line. A parallel line is then drawn above the highs for the same period, again such that no high penetrates that line. Once it penetrated that upper channel, it corrected horizontally for about 8 days before downtrending. As is the case with large cap stocks like AOL, once the upper channel is penetrated, one can expect a reversal. Conversely, when the downtrend is crossed, a reversal and uptrend should occure withing a week to 10 days of the pivot. Through May and the first week of June the stock formed a declining channel and reversed then to form a new uptrend. Again, in mid-July AOL crossed the upper channel and then reversed. The difference between the two channels gives one a lot of information about reversal points. Projecting the data to Monday, AOL could conceivably trade between 95 and 112 and still be within the channel. Barring a huge tanking, one could set a mental target of 96 and buy if the stock reached that amount. Consequently, if the stock rose above 112, it will either signal a reversal or at minimum a time to buy to cover a short postion. I would recommend having a couple of days of confirming uptrend before buying on the channels. A breakout for daytraders would look like what occurred in the last three days of June - the stock gapped open and continued up for another week moving from about 75 up to 92 before leveling and then forming the reversal. On the 1, 5, or 15 minute charts, this same timeframe would not have provided as much information relative to the larger movements of the stock. lastshadow