Stock market stages

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Stock Market Stages To exchange stocks effectively, you should first comprehend the four securities exchange arranges that individual stocks

and the general business sector experience. These cycles let you know whether you ought to be long, short or in real

money.

When you can distinguish what stage it is in, you can then exchange in like manner to those attributes.

Before long you won't need to consider whether you ought to be long or short. You will know, without inquiry, precisely

what you ought to do NOW. You will either be concentrating on long positions, short positions, or you will stay securely in

real money - just by looking at a diagram!

Here are the four phases that stocks experience. This happens in unsurpassed casings whether it is a month to month

outline, week after week diagram, day by day graph, or an Intraday diagram.

Ok, so I'm not the best artist in the world but I think it will serve our purpose here! What? You thought it would be more

complicated that? My philosophy on the stock market is that if it is too complicated then it is just not worth doing. Now,

we'll look at the characteristics of the four stock market stages. I promise it will be painless




Stage one

Stage 1 is the stage right after a prolonged downtrend. This stock has been going down but now it

is starting to trade sideways forming a base. The sellers who once had the upper hand are now

beginning to lose their power because of the buyers starting to get more aggressive. The stock

just drifts sideways without a clear trend. Everyone hates this stock!

Stage two

Finally stocks break out into Stage 2 and begins the uptrend. Oh, the glory of stage 2!! Sometimes

I have dreams of stocks in Stage 2! This is where the majority of the money is made in the stock

market. But here is the funny thing: No one believes the rally! That's right, everyone still hates the

stock. The fundamentals are bad, the outlook is negative, etc. But professional traders know

better. They are accumulating shares and getting ready to dump it off to those getting in late. This

sets up stage 3.

Stage three

Finally, after the glorious advance of stage 2, the stock begins to trade sideways again and starts

to "churn". Novice traders are just now getting in! This stage is very similar to stage 1. Buyers and

sellers move into equilibrium again and the stock just drifts along. It is now ready to begin the next

stage

Stage four

This is the dreaded downtrend for those that are long this stock. But, you know what the funny

thing is? You guessed it. Nobody believes the downtrend! The fundamentals are probably still very

good and everyone still loves this stock. They think the downtrend is just a "correction". Wrong!

They hold and hold and hold, hoping it will reverse back up again. They probably bought at the

end of Stage 2 or during Stage 3. Sorry, you lose. Checkmate!




Here is an example:

Stock market stages occur in all time frames on every chart you look at. This could be a

five minute chart of Microsoft or a weekly chart of the Dow.

Generally, you want to stay in cash when a stock (or the market itself) is chopping around in a

stage one. In stage two you will want to be aggressively focusing on long positions. In stage three

you want to be in cash. In stage four you want to be aggressively focusing on short positions.

But, here is where it get a little tricky: Within each stage there are waves.




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. Most stocks will

trend along with the rest of the market. If the major indexes are in a Stage 2 advance,

you can expect the majority of stocks to also be in a Stage 2 advance. The most

important thing to keep an eye on is when the overall market transitions into a Stage 4

decline. Since most stocks will be declining along with the rest of the market at that

point it would be prudent to get out of long positions and stay conservative while the

market declines.

Key Points

1. Avoid buying stocks in Stage 1 bases until they breakout into a Stage 2 advance, as

sometimes capital can become tied up when a stock bases for a long period of time

2. The best opportunity for buying comes on the breakout from Stage 1 to Stage 2

3. Stage 3 consolidations can either form a top and lead to a Stage 4 decline, or simply

a trading range that develops into another Stage 2 advance

4. Never hold a stock that is in a Stage 4 decline as it can lead to major losses

5. The stage of the overall market has a big influence on individual stocks since most

stocks follow the trend of the market




Quotes From Stan Weinstein

“Over the years, it has become obvious to me that the more mechanical I’ve made

my system and the less subject to judgments and emotions, the more profitable it

has become.”

“Fear causes you to panic and sell at the bottom, while greed motivates you to buy

right near the top. These are the driving factors behind the crowd’s yo-yo

mentality.”

“Always be on the lookout for a very large base formation. This is especially

important since these formations usually lead to very extensive and long running

advances.”

“Just as it takes more time and energy to push a boulder up a hill than fall, so it is

with stocks. Both gravity and fear bring things down in a hurry.”


Business

Stock market stages