This analysis is based on the idea that stocks bottom from "panic" selling, after which a rebound is imminent. One way of measuring this phenomenon is to observe a widening range between high and low prices each day. In general a progressively wider range, observed over a relatively short period of time, can indicate that a bottom is near. Price tops are generally reached at a more leisurely pace and can be characterized by a narrowing of the price range. This measure of the trading range takes place over a specified period in order to determine whether or not an issue is being "dumped" and is approaching a bottom.
A pre-requisite to a valid bottom is an increase in the volatility line above the reference line. In a similar manner, an indication of an imminent top would be a decrease in the volatility line below the reference line. As long as volatility is rising, in all probability a stock will not approach a top. It should be noted that this study should be used in conjunction with trend following analyses and momentum oscillators for confirmation and accuracy.
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