Stage Analysis is a strategy for longer term and trading. It uses chart patterns to describe for distinct stages that a particular trade can be in. The stage, and transitions between stages, have specific guidelines for whether a trader should buy, sell, or hold the trade. This creates a simple strategy to follow when trading the market. Stage Analysis also helps traders identify and stay invested in long term trends in the market. The four stages are described below:-
BASING:
A period in which a stock or other traded security is showing little in the way of upward or downward movement. The resulting price pattern is a flat line. Often, 'basing' is a term used by technical analysts to describe an issue that is consolidating after a period of rapid growth or decline. A basing stock is one with equal amounts of supply and demand. Basing is a common occurrence after a stock or the market has been in a lengthy decline or has increased by a large amount. In other words, the market is taking a break. Some stocks can form a base that lasts for several years before the trend is reversed.
A basing stock is also thought to be one that is forming new lines of support and resistance. In essence, basing is the merging of previous lines, which leads to the formation of different ones. Many technical analysts believe that basing is crucial, especially for surging stocks. They view basing as the "breather" that allows the issue to continue climbing.
ADVANCING
After a long wait, and having your money tied up what feels like ages, finally stage 2 arrives and the uptrend starts. The pros pile up a lot of the stock before the masses get in. Since most amateurs have forgotten about this beaten down stock, they start buying when the price advanced far too much and that is when we get in the next stage. You should better be long in this stage. The stock breaks out of the horizontal base and begins advancing over a period of time. The breakout needs to occur on increased volume, otherwise it might not be sustainable. The stock should also break above the 180 days moving average during the breakout. While the stock moves higher, most of the advance should occur above a rising 180 days moving average.
TOPPING
This stage is a bit similar to stage 1, except stage 3 is the stage following after an uptrend (and not a downtrend). The stock starts to move sideways and buyers and sellers are equal. The pros already unloaded there stocks or are still unloading. The stock starts to trend sideways in Stage 3 and lose momentum to the upside. The 180 days moving average also loses its upward slope and starts moving sideways. The price action in the stock usually occurs much more above and below the flattened 180 days moving average than it did in Stage 2. The stock will either breakdown into a Stage 4 decline after this stage, or after a consolidation break back into another Stage 2 advance.
DECLINING
The stock breaks down below Stage 3 trading range and below the 180 days moving average in Stage 4, and continues to decline mostly below the 180 days moving average. The 180 days moving average begins a long slope downward.
BASING:
A period in which a stock or other traded security is showing little in the way of upward or downward movement. The resulting price pattern is a flat line. Often, 'basing' is a term used by technical analysts to describe an issue that is consolidating after a period of rapid growth or decline. A basing stock is one with equal amounts of supply and demand. Basing is a common occurrence after a stock or the market has been in a lengthy decline or has increased by a large amount. In other words, the market is taking a break. Some stocks can form a base that lasts for several years before the trend is reversed.
A basing stock is also thought to be one that is forming new lines of support and resistance. In essence, basing is the merging of previous lines, which leads to the formation of different ones. Many technical analysts believe that basing is crucial, especially for surging stocks. They view basing as the "breather" that allows the issue to continue climbing.
ADVANCING
After a long wait, and having your money tied up what feels like ages, finally stage 2 arrives and the uptrend starts. The pros pile up a lot of the stock before the masses get in. Since most amateurs have forgotten about this beaten down stock, they start buying when the price advanced far too much and that is when we get in the next stage. You should better be long in this stage. The stock breaks out of the horizontal base and begins advancing over a period of time. The breakout needs to occur on increased volume, otherwise it might not be sustainable. The stock should also break above the 180 days moving average during the breakout. While the stock moves higher, most of the advance should occur above a rising 180 days moving average.
TOPPING
This stage is a bit similar to stage 1, except stage 3 is the stage following after an uptrend (and not a downtrend). The stock starts to move sideways and buyers and sellers are equal. The pros already unloaded there stocks or are still unloading. The stock starts to trend sideways in Stage 3 and lose momentum to the upside. The 180 days moving average also loses its upward slope and starts moving sideways. The price action in the stock usually occurs much more above and below the flattened 180 days moving average than it did in Stage 2. The stock will either breakdown into a Stage 4 decline after this stage, or after a consolidation break back into another Stage 2 advance.
DECLINING
The stock breaks down below Stage 3 trading range and below the 180 days moving average in Stage 4, and continues to decline mostly below the 180 days moving average. The 180 days moving average begins a long slope downward.
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