Understand the Tendencies

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Simply put, periods of extreme indecision and compression in a security tend to lead a sharp resolution, one way or the other. Orbitz Worldwide, the global online travel firm, has seen volume and price volatility noticeably diminish over the past five weeks. You can see the tight Bollinger Bands on the daily chart, below. In a situation like this, you want to look at that compression within the context of the overall chart, rather than just in a vacuum.

Here, the stock had recently broken out from a multi-year downtrend on impressive volume. If Orbitz is going to sustain its bearish to bullish major reversal, the looming resolution is going to be a powerful move to the upside out of this extraordinarily tight compression, proving to be a significant higher low. Rather than a particular price trigger in this example, I would be looking for an increase in volume to signal the explosion. And, of course, if the resolution comes to the downside, protective stop-losses are your saving grace.

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