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What is the fear and greed index used for in market analysis?
The fear and greed index is used to assess market sentiment. It measures the emotions of investors by gauging whether they are greedy or fearful. Extreme levels of fear or greed can indicate potential turning points in the market. Options B, C, and D represent other purposes in market analysis, but they do not specifically relate to the fear and greed index. Therefore, option A is the correct choice.
The fear and greed index is used to assess market sentiment. It measures the emotions of investors by gauging whether they are greedy or fearful. Extreme levels of fear or greed can indicate potential turning points in the market. Options B, C, and D represent other purposes in market analysis, but they do not specifically relate to the fear and greed index. Therefore, option A is the correct choice.
What is the primary purpose of conducting correlation analysis between different asset classes in intermarket analysis?
The primary purpose of conducting correlation analysis between different asset classes in intermarket analysis is to forecast market trends. By analyzing the relationships between various markets such as equities, bonds, commodities, and currencies, traders can gain insights into potential future movements in prices. Options A, C, and D represent other aspects of market analysis, but they do not specifically relate to the purpose of conducting correlation analysis between different asset classes. Therefore, option B is the correct choice.
The primary purpose of conducting correlation analysis between different asset classes in intermarket analysis is to forecast market trends. By analyzing the relationships between various markets such as equities, bonds, commodities, and currencies, traders can gain insights into potential future movements in prices. Options A, C, and D represent other aspects of market analysis, but they do not specifically relate to the purpose of conducting correlation analysis between different asset classes. Therefore, option B is the correct choice.
Mr. Patel, a market technician, is developing a position sizing strategy for his trading portfolio. What factor should he primarily consider when determining the optimal position size for each trade?
When determining the optimal position size for each trade, Mr. Patel should primarily consider recent price volatility. Price volatility reflects the magnitude of price fluctuations in an asset, and a higher volatility suggests larger potential price movements. By considering recent price volatility, Mr. Patel can adjust his position sizes to account for the inherent risk associated with more volatile assets. Options A, C, and D represent other factors that may influence trading decisions, but they do not specifically relate to determining position size based on recent price volatility. Therefore, option B is the correct choice.
When determining the optimal position size for each trade, Mr. Patel should primarily consider recent price volatility. Price volatility reflects the magnitude of price fluctuations in an asset, and a higher volatility suggests larger potential price movements. By considering recent price volatility, Mr. Patel can adjust his position sizes to account for the inherent risk associated with more volatile assets. Options A, C, and D represent other factors that may influence trading decisions, but they do not specifically relate to determining position size based on recent price volatility. Therefore, option B is the correct choice.
What is the primary interpretation of the Stochastic Oscillator in technical analysis?
The primary interpretation of the Stochastic Oscillator in technical analysis is measuring momentum. It compares the current closing price of a security to its price range over a certain period, indicating whether the asset is overbought or oversold. This information helps traders gauge the strength or weakness of price movements. Options A, B, and C represent other aspects of technical analysis, but they do not specifically relate to the primary interpretation of the Stochastic Oscillator. Therefore, option D is the correct choice.
The primary interpretation of the Stochastic Oscillator in technical analysis is measuring momentum. It compares the current closing price of a security to its price range over a certain period, indicating whether the asset is overbought or oversold. This information helps traders gauge the strength or weakness of price movements. Options A, B, and C represent other aspects of technical analysis, but they do not specifically relate to the primary interpretation of the Stochastic Oscillator. Therefore, option D is the correct choice.
According to the Code of Ethics and Standards of Professional Conduct for market technicians, what is a primary responsibility towards clients?
According to the Code of Ethics and Standards of Professional Conduct for market technicians, a primary responsibility towards clients is disclosing conflicts of interest. This ensures transparency and helps clients make informed decisions about their investments. Options A, B, and D represent actions that may violate ethical standards by misleading clients or prioritizing personal gain over client interests. Therefore, option C is the correct choice.
According to the Code of Ethics and Standards of Professional Conduct for market technicians, a primary responsibility towards clients is disclosing conflicts of interest. This ensures transparency and helps clients make informed decisions about their investments. Options A, B, and D represent actions that may violate ethical standards by misleading clients or prioritizing personal gain over client interests. Therefore, option C is the correct choice.
Mrs. Smith, a technical analyst, is analyzing a chart pattern and notices the formation of a double bottom pattern on the price chart of a stock. What should Mrs. Smith infer from this pattern?
Mrs. Smith should infer from the formation of a double bottom pattern on the price chart of a stock that there is an expectation of a bullish reversal. A double bottom pattern typically occurs after a downtrend and consists of two consecutive troughs at approximately the same price level, indicating a potential trend reversal to the upside. Options B, C, and D represent interpretations that are not consistent with the characteristics of a double bottom pattern. Therefore, option A is the correct choice.
Mrs. Smith should infer from the formation of a double bottom pattern on the price chart of a stock that there is an expectation of a bullish reversal. A double bottom pattern typically occurs after a downtrend and consists of two consecutive troughs at approximately the same price level, indicating a potential trend reversal to the upside. Options B, C, and D represent interpretations that are not consistent with the characteristics of a double bottom pattern. Therefore, option A is the correct choice.
In time series analysis, which technique is used to reduce random variation and highlight underlying trends in financial data?
In time series analysis, exponential smoothing is used to reduce random variation and highlight underlying trends in financial data. It assigns exponentially decreasing weights to older observations, giving more importance to recent data points. This technique helps in forecasting future values by smoothing out short-term fluctuations and emphasizing long-term trends. Options A, B, and C represent other statistical techniques used in time series analysis, but they do not specifically address the objective of reducing random variation and highlighting underlying trends. Therefore, option D is the correct choice.
In time series analysis, exponential smoothing is used to reduce random variation and highlight underlying trends in financial data. It assigns exponentially decreasing weights to older observations, giving more importance to recent data points. This technique helps in forecasting future values by smoothing out short-term fluctuations and emphasizing long-term trends. Options A, B, and C represent other statistical techniques used in time series analysis, but they do not specifically address the objective of reducing random variation and highlighting underlying trends. Therefore, option D is the correct choice.
What is the primary purpose of the Advance-decline line in assessing market breadth?
The primary purpose of the Advance-decline line in assessing market breadth is identifying potential trend reversals. It compares the number of advancing stocks to the number of declining stocks over a certain period, providing insights into the overall strength or weakness of the market. Divergence between the Advance-decline line and the market index may signal a potential reversal in the prevailing trend. Options B, C, and D represent other aspects of market analysis, but they do not specifically relate to the primary purpose of the Advance-decline line. Therefore, option A is the correct choice.
The primary purpose of the Advance-decline line in assessing market breadth is identifying potential trend reversals. It compares the number of advancing stocks to the number of declining stocks over a certain period, providing insights into the overall strength or weakness of the market. Divergence between the Advance-decline line and the market index may signal a potential reversal in the prevailing trend. Options B, C, and D represent other aspects of market analysis, but they do not specifically relate to the primary purpose of the Advance-decline line. Therefore, option A is the correct choice.
Ms. Rodriguez, an experienced trader, notices that the Fear and Greed Index for the stock market has reached an extreme level of fear. What action should Ms. Rodriguez consider based on this observation?
Based on the observation that the Fear and Greed Index for the stock market has reached an extreme level of fear, Ms. Rodriguez should consider implementing a contrarian trading strategy. This strategy involves taking positions opposite to the prevailing market sentiment, as extreme fear often leads to oversold conditions and potential buying opportunities. Options A, B, and C represent actions that may not be suitable in response to extreme fear in the market. Therefore, option D is the correct choice.
Based on the observation that the Fear and Greed Index for the stock market has reached an extreme level of fear, Ms. Rodriguez should consider implementing a contrarian trading strategy. This strategy involves taking positions opposite to the prevailing market sentiment, as extreme fear often leads to oversold conditions and potential buying opportunities. Options A, B, and C represent actions that may not be suitable in response to extreme fear in the market. Therefore, option D is the correct choice.
Which technical indicator is commonly used to identify overbought and oversold conditions in the market?
The Relative Strength Index (RSI) is commonly used to identify overbought and oversold conditions in the market. It measures the magnitude of recent price changes to evaluate whether a stock or market is overbought or oversold. RSI values above 70 typically indicate overbought conditions, while values below 30 indicate oversold conditions. Options B, C, and D represent other technical indicators, but they do not specifically focus on identifying overbought and oversold conditions. Therefore, option A is the correct choice.
The Relative Strength Index (RSI) is commonly used to identify overbought and oversold conditions in the market. It measures the magnitude of recent price changes to evaluate whether a stock or market is overbought or oversold. RSI values above 70 typically indicate overbought conditions, while values below 30 indicate oversold conditions. Options B, C, and D represent other technical indicators, but they do not specifically focus on identifying overbought and oversold conditions. Therefore, option A is the correct choice.
Which position sizing strategy involves allocating a fixed percentage of capital to each trade based on the investor’s risk tolerance?
The fixed fractional position sizing strategy involves allocating a fixed percentage of capital to each trade based on the investor’s risk tolerance. This strategy helps manage risk by adjusting position sizes relative to the size of the trading account. Options B, C, and D represent other position sizing strategies, but they do not specifically involve allocating a fixed percentage of capital to each trade. Therefore, option A is the correct choice.
The fixed fractional position sizing strategy involves allocating a fixed percentage of capital to each trade based on the investor’s risk tolerance. This strategy helps manage risk by adjusting position sizes relative to the size of the trading account. Options B, C, and D represent other position sizing strategies, but they do not specifically involve allocating a fixed percentage of capital to each trade. Therefore, option A is the correct choice.
Mr. Thompson, a quantitative analyst, has developed a new algorithmic trading strategy based on machine learning models. After backtesting the strategy, he finds that it generates consistently profitable results. What should Mr. Thompson consider before deploying the strategy in live trading?
Before deploying the new algorithmic trading strategy in live trading, Mr. Thompson should consider conducting further optimization and sensitivity analysis to validate the strategy’s robustness. This involves testing the strategy under various market conditions and parameter settings to ensure its effectiveness and stability. Options A, C, and D represent actions that may overlook the importance of thorough validation and optimization before live deployment. Therefore, option B is the correct choice.
Before deploying the new algorithmic trading strategy in live trading, Mr. Thompson should consider conducting further optimization and sensitivity analysis to validate the strategy’s robustness. This involves testing the strategy under various market conditions and parameter settings to ensure its effectiveness and stability. Options A, C, and D represent actions that may overlook the importance of thorough validation and optimization before live deployment. Therefore, option B is the correct choice.
Which statistical technique is commonly used to identify and adjust for seasonal patterns in financial data?
Seasonality analysis is a statistical technique commonly used to identify and adjust for seasonal patterns in financial data. It involves analyzing historical data to detect recurring patterns that occur at specific times of the year. Moving averages (option A) and exponential smoothing (option B) are smoothing techniques used to remove noise from time series data, but they do not specifically address seasonality. Linear regression (option D) is a statistical method used to model the relationship between variables but may not be specifically focused on identifying seasonal patterns. Therefore, option C is the correct choice.
Seasonality analysis is a statistical technique commonly used to identify and adjust for seasonal patterns in financial data. It involves analyzing historical data to detect recurring patterns that occur at specific times of the year. Moving averages (option A) and exponential smoothing (option B) are smoothing techniques used to remove noise from time series data, but they do not specifically address seasonality. Linear regression (option D) is a statistical method used to model the relationship between variables but may not be specifically focused on identifying seasonal patterns. Therefore, option C is the correct choice.
Which market breadth indicator is used to track market sentiment by measuring the number of advancing stocks versus the number of declining stocks?
The advance-decline line is a market breadth indicator used to track market sentiment by measuring the number of advancing stocks versus the number of declining stocks. It provides insight into the overall health of the market by showing whether more stocks are advancing or declining. Options B, C, and D represent other market breadth indicators, but they do not specifically measure the breadth of market sentiment in terms of advancing versus declining stocks. Therefore, option A is the correct choice.
The advance-decline line is a market breadth indicator used to track market sentiment by measuring the number of advancing stocks versus the number of declining stocks. It provides insight into the overall health of the market by showing whether more stocks are advancing or declining. Options B, C, and D represent other market breadth indicators, but they do not specifically measure the breadth of market sentiment in terms of advancing versus declining stocks. Therefore, option A is the correct choice.
Mr. Smith, a seasoned trader, notices that the market sentiment has turned excessively optimistic, with many traders exhibiting signs of greed and overconfidence. What should Mr. Smith consider in this situation?
In a situation where the market sentiment is excessively optimistic, with signs of greed and overconfidence, Mr. Smith should exercise caution and consider reducing exposure to avoid potential market reversals. Excessive optimism often precedes market corrections or reversals, and reducing exposure can help mitigate downside risks. Options A, C, and D represent actions that may overlook the risks associated with prevailing market sentiment. Therefore, option B is the correct choice.
In a situation where the market sentiment is excessively optimistic, with signs of greed and overconfidence, Mr. Smith should exercise caution and consider reducing exposure to avoid potential market reversals. Excessive optimism often precedes market corrections or reversals, and reducing exposure can help mitigate downside risks. Options A, C, and D represent actions that may overlook the risks associated with prevailing market sentiment. Therefore, option B is the correct choice.
Which technical indicator is commonly used to measure the rate of change in a security’s price over a specified time period?
The Rate of Change (ROC) is a technical indicator commonly used to measure the rate of change in a security’s price over a specified time period. It calculates the percentage change in price over a defined number of periods, indicating the momentum of the price movement. Options A, B, and D represent other technical indicators, but they do not specifically measure the rate of change in price. Therefore, option C is the correct choice.
The Rate of Change (ROC) is a technical indicator commonly used to measure the rate of change in a security’s price over a specified time period. It calculates the percentage change in price over a defined number of periods, indicating the momentum of the price movement. Options A, B, and D represent other technical indicators, but they do not specifically measure the rate of change in price. Therefore, option C is the correct choice.
Which position sizing strategy allocates a fixed percentage of the trading capital to each trade, adjusting the position size based on the available capital?
The fixed fractional method is a position sizing strategy that allocates a fixed percentage of the trading capital to each trade, adjusting the position size based on the available capital. It aims to manage risk by limiting the impact of losses on the overall trading capital. Options B, C, and D represent other position sizing strategies, but they do not specifically involve allocating a fixed percentage of trading capital to each trade. Therefore, option A is the correct choice.
The fixed fractional method is a position sizing strategy that allocates a fixed percentage of the trading capital to each trade, adjusting the position size based on the available capital. It aims to manage risk by limiting the impact of losses on the overall trading capital. Options B, C, and D represent other position sizing strategies, but they do not specifically involve allocating a fixed percentage of trading capital to each trade. Therefore, option A is the correct choice.
Ms. Patel, an algorithmic trader, has developed a new trading strategy using machine learning models for predictive modeling and pattern recognition. What steps should Ms. Patel take before implementing her algorithmic trading strategy?ition.
Before implementing her algorithmic trading strategy, Ms. Patel should conduct thorough backtesting to evaluate the performance and robustness of the strategy. Backtesting involves testing the strategy on historical data to assess its profitability, risk-adjusted returns, and consistency across different market conditions. Options A, C, and D represent actions that may overlook the importance of testing and evaluating the strategy before live implementation. Therefore, option B is the correct choice.
Before implementing her algorithmic trading strategy, Ms. Patel should conduct thorough backtesting to evaluate the performance and robustness of the strategy. Backtesting involves testing the strategy on historical data to assess its profitability, risk-adjusted returns, and consistency across different market conditions. Options A, C, and D represent actions that may overlook the importance of testing and evaluating the strategy before live implementation. Therefore, option B is the correct choice.
Which market breadth indicator is calculated by subtracting the number of stocks reaching new lows from the number of stocks reaching new highs?
New highs and new lows analysis is a market breadth indicator calculated by subtracting the number of stocks reaching new lows from the number of stocks reaching new highs. It helps in tracking market sentiment and identifying potential trend reversals by measuring the participation of stocks in reaching new highs or lows. Options A, C, and D represent other market breadth indicators, but they do not specifically involve analyzing the number of stocks reaching new highs and lows. Therefore, option B is the correct choice.
New highs and new lows analysis is a market breadth indicator calculated by subtracting the number of stocks reaching new lows from the number of stocks reaching new highs. It helps in tracking market sentiment and identifying potential trend reversals by measuring the participation of stocks in reaching new highs or lows. Options A, C, and D represent other market breadth indicators, but they do not specifically involve analyzing the number of stocks reaching new highs and lows. Therefore, option B is the correct choice.
Which statistical technique is commonly used to identify and adjust for seasonal patterns in financial data?
Seasonality analysis is a statistical technique commonly used to identify and adjust for seasonal patterns in financial data. It involves analyzing historical data to identify recurring patterns or trends that occur at specific times of the year. Options A, B, and C represent other statistical techniques, but they do not specifically focus on identifying and adjusting for seasonal patterns. Therefore, option D is the correct choice.
Seasonality analysis is a statistical technique commonly used to identify and adjust for seasonal patterns in financial data. It involves analyzing historical data to identify recurring patterns or trends that occur at specific times of the year. Options A, B, and C represent other statistical techniques, but they do not specifically focus on identifying and adjusting for seasonal patterns. Therefore, option D is the correct choice.
Mr. Thompson, a market technician, has access to non-public information about a company’s upcoming earnings report. What actions should Mr. Thompson take to comply with ethical standards and regulatory requirements?
To comply with ethical standards and regulatory requirements, Mr. Thompson should refrain from trading or disclosing the non-public information to avoid insider trading violations. Insider trading regulations prohibit the use of material, non-public information for trading purposes. Options A, B, and D represent actions that may violate insider trading regulations or ethical standards. Therefore, option C is the correct choice.
To comply with ethical standards and regulatory requirements, Mr. Thompson should refrain from trading or disclosing the non-public information to avoid insider trading violations. Insider trading regulations prohibit the use of material, non-public information for trading purposes. Options A, B, and D represent actions that may violate insider trading regulations or ethical standards. Therefore, option C is the correct choice.
Which volume indicator measures the flow of money into or out of a security by comparing the security’s closing price to its trading range?
Chaikin Money Flow is a volume indicator that measures the flow of money into or out of a security by comparing the security’s closing price to its trading range. It uses both price and volume to assess buying and selling pressure. Options A, C, and D represent other volume indicators, but they do not specifically measure the flow of money into or out of a security based on its price and trading range. Therefore, option B is the correct choice.
Chaikin Money Flow is a volume indicator that measures the flow of money into or out of a security by comparing the security’s closing price to its trading range. It uses both price and volume to assess buying and selling pressure. Options A, C, and D represent other volume indicators, but they do not specifically measure the flow of money into or out of a security based on its price and trading range. Therefore, option B is the correct choice.
Which position sizing strategy allocates a fixed percentage of capital to each trade?
Fixed fractional position sizing is a strategy that allocates a fixed percentage of capital to each trade. It aims to control risk by adjusting position sizes based on the account size and risk tolerance. Options B, C, and D represent other position sizing strategies, but they do not specifically involve allocating a fixed percentage of capital to each trade. Therefore, option A is the correct choice.
Fixed fractional position sizing is a strategy that allocates a fixed percentage of capital to each trade. It aims to control risk by adjusting position sizes based on the account size and risk tolerance. Options B, C, and D represent other position sizing strategies, but they do not specifically involve allocating a fixed percentage of capital to each trade. Therefore, option A is the correct choice.
Mrs. Garcia is designing an automated trading system using machine learning algorithms. What considerations should she keep in mind during the design process?
During the design process of an automated trading system using machine learning algorithms, Mrs. Garcia should implement risk management mechanisms and conduct rigorous backtesting to validate the algorithms. Backtesting helps in evaluating the performance of algorithms using historical data, while risk management mechanisms are essential for controlling potential losses. Options A, B, and D represent actions that may increase the risk of trading system failures or regulatory violations. Therefore, option C is the correct choice.
During the design process of an automated trading system using machine learning algorithms, Mrs. Garcia should implement risk management mechanisms and conduct rigorous backtesting to validate the algorithms. Backtesting helps in evaluating the performance of algorithms using historical data, while risk management mechanisms are essential for controlling potential losses. Options A, B, and D represent actions that may increase the risk of trading system failures or regulatory violations. Therefore, option C is the correct choice.
Which type of analysis involves correlation analysis between different asset classes and its relevance in forecasting market trends?
Intermarket analysis involves correlation analysis between different asset classes, such as equities, bonds, commodities, and currencies. It assesses how movements in one market can affect another and helps in forecasting market trends. Options A, B, and D represent other types of analysis, but they do not specifically involve correlation analysis between different asset classes. Therefore, option C is the correct choice.
Intermarket analysis involves correlation analysis between different asset classes, such as equities, bonds, commodities, and currencies. It assesses how movements in one market can affect another and helps in forecasting market trends. Options A, B, and D represent other types of analysis, but they do not specifically involve correlation analysis between different asset classes. Therefore, option C is the correct choice.
Which statistical technique is commonly used for identifying and adjusting for seasonal patterns in financial data?
Time series analysis is commonly used for identifying and adjusting for seasonal patterns in financial data. It involves techniques such as moving averages, exponential smoothing, and trend analysis. Options A, C, and D represent other statistical techniques, but they do not specifically focus on identifying and adjusting for seasonal patterns. Therefore, option B is the correct choice.
Time series analysis is commonly used for identifying and adjusting for seasonal patterns in financial data. It involves techniques such as moving averages, exponential smoothing, and trend analysis. Options A, C, and D represent other statistical techniques, but they do not specifically focus on identifying and adjusting for seasonal patterns. Therefore, option B is the correct choice.
Mr. Thompson is analyzing market breadth using the McClellan Oscillator. What does a rising McClellan Oscillator value indicate, and how should Mr. Thompson interpret it?
A rising McClellan Oscillator value indicates increasing market breadth, suggesting that more stocks are advancing relative to declining stocks. This typically signifies bullish market conditions, indicating broad participation in the market rally. Therefore, Mr. Thompson should consider initiating long positions or holding onto existing long positions. Options A, B, and D misinterpret the implications of a rising McClellan Oscillator value. Therefore, option C is the correct choice.
A rising McClellan Oscillator value indicates increasing market breadth, suggesting that more stocks are advancing relative to declining stocks. This typically signifies bullish market conditions, indicating broad participation in the market rally. Therefore, Mr. Thompson should consider initiating long positions or holding onto existing long positions. Options A, B, and D misinterpret the implications of a rising McClellan Oscillator value. Therefore, option C is the correct choice.
Which cognitive bias in trading involves the tendency to place undue weight on recent information and experiences while ignoring historical data?
Recency bias refers to the tendency to place undue weight on recent information and experiences while ignoring historical data. Traders exhibiting recency bias may overreact to recent market movements without considering the broader historical context. Options A, B, and C represent other cognitive biases, but they do not specifically involve placing undue weight on recent information. Therefore, option D is the correct choice.
Recency bias refers to the tendency to place undue weight on recent information and experiences while ignoring historical data. Traders exhibiting recency bias may overreact to recent market movements without considering the broader historical context. Options A, B, and C represent other cognitive biases, but they do not specifically involve placing undue weight on recent information. Therefore, option D is the correct choice.
Which technical indicator is primarily used to measure the speed and change of price movements, helping identify overbought and oversold conditions in the market?
The Relative Strength Index (RSI) is primarily used to measure the speed and change of price movements. It helps identify overbought and oversold conditions in the market by comparing the magnitude of recent gains and losses. Options A, C, and D represent other technical indicators, but they do not specifically measure the speed and change of price movements. Therefore, option B is the correct choice.
The Relative Strength Index (RSI) is primarily used to measure the speed and change of price movements. It helps identify overbought and oversold conditions in the market by comparing the magnitude of recent gains and losses. Options A, C, and D represent other technical indicators, but they do not specifically measure the speed and change of price movements. Therefore, option B is the correct choice.
Ms. Patel is managing her investment portfolio and is considering different position sizing strategies. She has a moderate risk tolerance and wants to ensure optimal risk management. Which position sizing strategy would you recommend to Ms. Patel, and why?
The fixed fractional method would be the most suitable position sizing strategy for Ms. Patel, considering her moderate risk tolerance and the need for optimal risk management. This method allows for dynamic position sizing based on portfolio performance and risk, ensuring that position sizes are adjusted according to the size of the trading account and the level of risk involved. Options B, C, and D represent other position sizing strategies, but they may not offer the same level of flexibility and adaptability as the fixed fractional method. Therefore, option A is the correct choice.
The fixed fractional method would be the most suitable position sizing strategy for Ms. Patel, considering her moderate risk tolerance and the need for optimal risk management. This method allows for dynamic position sizing based on portfolio performance and risk, ensuring that position sizes are adjusted according to the size of the trading account and the level of risk involved. Options B, C, and D represent other position sizing strategies, but they may not offer the same level of flexibility and adaptability as the fixed fractional method. Therefore, option A is the correct choice.
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