Nikita Poojary

Nikita Poojary



Stan Weinstein often talks about Stage Analysis while analysing a stock. But how would you identify when to buy a stock or hold or sell? 22 Powerful concepts to gain an edge in your stock trading and investing. Collaborated with @AdityaTodmal

Timeless concepts of Stage Analysis inspired by the book 'Stan Weinstein's Secrets for Profiting in Bull and Bear Markets'. Stage Analysis is the key to knowing whether to buy, hold or sell a stock.

1/ What is Stage analysis? Stage Analysis is a strategy for longer term trend trading. Stage Analysis uses chart patterns to describe four distinct stages that a particular trade can be in.

2/ How does stage analysis help? Stage Analysis helps traders identify as to when to go long, when to hold and when to go short. The stage, and transitions between stages, have specific guidelines for whether a trader should buy, sell, or hold the trade.

3/ Is it a day trading system?: No, it is not a day trading system, however it helps a trader/investor as to how to position themselves basis the ongoing stage.

4/ There are 4 stages: Any stock has to be in one of the four markets, the trick is to identify each one: 1. Basing Area 2. Advancing Stage 3. Topping Stage 4. Declining Stage

5/ Key Components Of Stage Analysis: Weekly Charts are used as this system is designed for longer-term trading. 30-Week Moving Average (WMA): The price action on the weekly chart is compared in relation to the 30 WMA in order to determine the specific stage.

6/ Visual representation of Stage analysis:

7/ Stage 1: Basing Area: A base is simply a period where the stock moves mostly sideways instead of trending higher or lower. The base forms after a decline in the stock price. The longer the horizontal base the better.

A long base will establish a more significant support level, and the ownership of the stock will transfer from weak hands to strong hands. The price action in the stock usually oscillates above and below the 30-week moving average while forming the horizontal base.

Stage 1 can go on for months to years. Volume usually dries up initially in Stage 1, but can expand later in the base as more buyers come in. This indicates that large scale selling of the stock isn’t driving down the price which is a good sign.

8/ How does Stage 1 appears in the chart: Initially, 30WMA loses its downside slope and starts to flatten out. Additionally, intermittent rallies and declines will toss the stock above and below MA.

9/ Actions to take in Stage 1: 1) Create a list of stocks in this stage, and set price alerts where they would likely breakout. 2) Take a look at the sector the stock is in and see if the entire sector is also in the same stage. This would further validate the breakout.

10/ Stage 2: Advancing Stage: A Breakout above the top of the resistance zone of Stage 1 and 30WMA should occur with an impressive volume. This is the start of advancing Stage 2 uptrend phase.

11/ Characteristics of Stage 2 Breakout: Overall trend of the market should be in a strong uptrend. If a stock belongs to a sector it has a much higher probability of being a big winner if the sector is outperforming the benchmark index.

The breakout needs to occur on increased volume, ideally 2x average weekly volume for the breakout week, or 2x average volume in the weeks leading up to the breakout followed by an increase in volume during the breakout week.

12/ Actions to take in Stage 2: The stock should be bought on the breakout or on a pullback to the breakout level. The stock can be held until a Stage 3 top forms or a trailing stop is hit. Can also use the 30WMA as an area to trail a stop loss under.

13/ Stage 3: Topping Stage: The stock starts to trend sideways in Stage 3 and loses its upward momentum. What's going beneath the surface is that buyers & sellers are once again about equal in strength.

In stage 2 buyers were far stronger & overwhemled the sellers. Now that the advance is ending the stock is in equilibrium, & the mirror image of a Stage 1 base starts to take shape. Volume is usually heavy in Stage 3 & the moves are sharp and choppy.

14/ How Stage 3 takes shape on the chart: The 30WMA also loses its upward slope and starts to flatten. The stock will tiptoe below or above the 30WMA. The stock will either breakdown into a Stage 4 decline, or after a consolidation, break back into another Stage 2 advance.

15/ Actions to take in this stage: Once stage 3 forms traders should exit their longs with their profits. Investors can book 50% as there are chances that stock can again form another base and move into Stage 2

16/ How to avoid pitfalls in this stage: No matter how convincing the story is or how powerful are the fundamentals never buy a stock that is in Stage 3 because the Reward/Risk ratio is strongly stacked against you.

17/ Stage 4: Declining Stage: The stock breaks down below Stage 3 trading range and below the 30WMA in Stage 4, and continues to decline mostly below the 30WMA. The 30WMA begins a long slope downward.

18/ Actions to take in this stage: 1) Sell positions during the transition into this stage, since they can lose considerable value if held during a steep decline. 2) Stay out of all stocks in this Stage 4.

19/ Few examples of stock in different stages:

20/ Stage Analysis of the overall market: Since the majority of stocks rise and fall along with the rest of the stock market, it is very important to know the stage the major market indexes are in.

21/ TLDR version: • Avoid buying stocks in Stage 1 bases until they breakout into a Stage 2 advance. • Best opportunity to go long is in Stage 2. • Stage 3 consolidations can either form a top and lead to a Stage 4 decline, or can develop into another Stage 2 advance.

•Never hold a stock that is in a Stage 4 decline, look for short opportunities in Stage 4. • The stage of the overall market has a big influence on individual stocks since most stocks follow the trend of the market.

22/ Pro Tip: You can use the same method to analyse any Mutual fund or ETF to determine when to buy, hold and sell. All one has to do is buy an aggressive fund when the market turns bullish (at the BO of Stage 2) and sell & move into a money market fund when Stage 3 BD sets in.

These timeless concepts of Stage Analysis are inspired from the book 'Stan Weinstein's Secrets for Profiting in Bull and Bear Markets'.

We are finally on Youtube!! We have a free Youtube Channel where we cover our analysis of the markets. Checkout using this link:

If you enjoyed this thread here's another one:

That's a wrap! If you enjoyed this thread: 1. Follow us @Adityatodmal & @niki_poojary for more threads on Price action, Option Selling & Trading growth. We've got you covered. 2. RT the first Tweet to share it with your audience. I appreciate it!

Follow us on Twitter

to be informed of the latest developments and updates!

You can easily use to @tivitikothread bot for create more readable thread!
Donate 💲

You can keep this app free of charge by supporting 😊

for server charges...