What is Stage Analysis ?
How does it help to filter stocks ?
A thread 🧵
#stocks #stageanalysis
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👇
How does it help to filter stocks ?
A thread 🧵
#stocks #stageanalysis
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👇
There are four main stages in stage analysis: accumulation, Advance, distribution, and Decline. Each stage is characterized by a specific psychology behind the stock's price movements.
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Key Components Of Stage Analysis
--->Weekly Stock Chart
--->30-Week Moving Average
--->Volume
--->Market Indices(#Nifty #smallcap100)
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--->Weekly Stock Chart
--->30-Week Moving Average
--->Volume
--->Market Indices(#Nifty #smallcap100)
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STAGE 1 -----> Accumulation/Base Formation
The stock forms a long horizontal base on the chart. A base is simply a period where the stock moves mostly sideways instead of trending higher or lower. The longer the horizontal base the better.
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The stock forms a long horizontal base on the chart. A base is simply a period where the stock moves mostly sideways instead of trending higher or lower. The longer the horizontal base the better.
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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.
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The psychology behind this stage is that buyers are confident in the stock's future prospects and are willing to accumulate positions at current prices.
Before taking a position as a trader we need to observe the volume whenever the prices attempts to break out of stage 1
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Before taking a position as a trader we need to observe the volume whenever the prices attempts to break out of stage 1
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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.
The basing in Stage 1 can go on for months .
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The basing in Stage 1 can go on for months .
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STAGE 2 - Advancing
Identifying Stage 2 breakout and examine its quality is the most important part. In Stage 2 the stock breaks out of the horizontal base and begins advancing over a period of time.
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Identifying Stage 2 breakout and examine its quality is the most important part. In Stage 2 the stock breaks out of the horizontal base and begins advancing over a period of time.
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In Stage 2 stock shows uptrend in the stock price, as demand for the stock increases and buyers are willing to pay higher prices for it. The psychology behind this is that buyers are willing to pay increasingly higher prices to get in on the action.
Buy high sell Higher
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Buy high sell Higher
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There’s two types of Stage 2 breakouts.
--->Breakout from a Stage 1 base (Stage 2 breakout)
This is a ideal buying zone for investors
--->Breakout from a consolidation within an existing uptrend (Stage 2 continuation breakout)
Buying zone for short term traders
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--->Breakout from a Stage 1 base (Stage 2 breakout)
This is a ideal buying zone for investors
--->Breakout from a consolidation within an existing uptrend (Stage 2 continuation breakout)
Buying zone for short term traders
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The magnitude and quality of the stage 2 move depends on various factors such as the
---> Sector
---> Base Size
---> Volume
---> Overall Market
---> Relative Strength
---> Resistance zones
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---> Sector
---> Base Size
---> Volume
---> Overall Market
---> Relative Strength
---> Resistance zones
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STAGE 3 Distribution
In distribution stage the stock starts to trend downward as smart investors start to sell. The psychology behind this stage is that investors are becoming less confident in the stock's future prospects and are looking to reduce their exposure to it.
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In distribution stage the stock starts to trend downward as smart investors start to sell. The psychology behind this stage is that investors are becoming less confident in the stock's future prospects and are looking to reduce their exposure to it.
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The stock starts to trend sideways and loses upside momentum. The 30 WMA also loses its upward slope and starts moving sideways. The price action in the stock usually occurs much more above and below the flattened 30 week moving average than
it did in Stage 2.
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it did in Stage 2.
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STAGE 4 --> Decline
The decline stage is characterized by a downtrend in the stock price, as buying demand decreases and sellers start to outnumber buyers. The psychology behind this stage is that sellers are becoming more dominant and are driving the price downward.
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The decline stage is characterized by a downtrend in the stock price, as buying demand decreases and sellers start to outnumber buyers. The psychology behind this stage is that sellers are becoming more dominant and are driving the price downward.
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The stock breaks down below Stage 3 trading range and below the 30-week moving average in Stage 4, and continues to decline mostly below the 30 week moving average. The 30-week moving average begins a long slope downward.
This is the most dangerous stage of all.
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This is the most dangerous stage of all.
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The most import factor to watch out is the trend of overall market.
If the major indices are in a Stage 2 advance, we can expect the majority of stocks to also be in a Stage 2 advance. If indices are in stage 4 we should avoid taking large positions on upside
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If the major indices are in a Stage 2 advance, we can expect the majority of stocks to also be in a Stage 2 advance. If indices are in stage 4 we should avoid taking large positions on upside
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Key Points to Remember -->
👉Avoid buying stocks in Stage 1 bases until
breakout
👉The best buying zone is the breakout from Stage 1
👉Never hold a stock that is in a Stage 4 decline
👉The stage of the overall market has a big influence
on individual stocks
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👉Avoid buying stocks in Stage 1 bases until
breakout
👉The best buying zone is the breakout from Stage 1
👉Never hold a stock that is in a Stage 4 decline
👉The stage of the overall market has a big influence
on individual stocks
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Stage analysis can be a useful tool for identifying the current stage of a stock's price trend, but it should be used in conjunction with other technical and fundamental analysis techniques.
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The END!
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