
How Counting Base Stages Can Keep You Aligned With Market Cycles
Ameet Rai
Electrical Engineer and Swing Trader focused on achieving super-performance. Through extensive studies of previous super-performance stocks and proprietary data-based research I provide guidance for new traders with an emphasis on building processes and teaching traders how to think and trade for themselves.
October 8, 2020
Throughout every market uptrend, stocks will advance, pause to consolidate their gains, and then continue their ascent. During this consolidation period, a base begins to develop.
Swing and Position Traders traditionally wait for a base to form before buying stocks as they emerge into new highs. Understanding which base is being formed is crucial in determining your risk tolerance, position sizing, and potential profit targets.
By analyzing the number of Base Stages you can determine how long the current market cycle has progressed.
Get aggressive in early-stage bases, but be quick to get defense in later-stage bases.

Stock Bases
A Base is a term used in Technical Analysis referring to a period where a stock’s price consolidates, or moves sideways, after an uptrend or downtrend. After a period of substantial price advances, traders begin to take profits.
When there are no longer any buyers at high prices selling pressure begins to emerge. The selling causes the price to decrease. Eventually, buyers will begin to support the price at lower levels bringing the price back towards its recent highs.
A base can form in just a couple of weeks but may also take many months. Depending on how far along the current market cycle is will determine the strength of a move and how much time is needed for a new base to form.
Think of it as the stock taking a “breather” due to large investors taking profits after a recent run-up. When bases form they are precursors to the next big move. Bases are opportunities for the stock to relax, balance out, and regain the strength needed to make another advance.
Symbol: TSLA
Company: Tesla, Inc
Year: 2019-2021

Click on the chart above to make it bigger.
Base Stages
As you can see in the example above, TSLA had multiple instances where it increased in price, moved sideways, and then increased in price again. This series of events is repeated over and over until the stock ultimately tops, rolls over, and then begins a new downtrend.
Counting Base Stages is a method used as a means of gauging the life cycle of a stock’s run.
Think of them as stepping stones. When used and identified properly they help you gauge risk vs reward by showing new support & resistance.
A stock is considered to have moved from one stage to the next, after an advance between its proper entry area and the beginning of its next consolidation. The average distance between bases is typically found to be around 20%.
Importance Of Counting Base Stages
Most leading growth stocks will typically form two or three stages during an uptrend before starting to lose momentum and needing to take a breather.
When a stock breaks out of an early-stage base, have the confidence to be aggressive. This is the moment you will want to maximize position sizing based on your strategies.
Early in the cycle, have patience to allow the uptrend to unfold and hold onto your position longer.
Breakouts from, third or fourth-stage bases and beyond can be successful however, they come with added risk. When entering a new position at a later-stage base breakout, decrease your position sizing and be quicker to take profits.
The odds that a leading stock’s breakout fails, goes up considerably in third-stage bases or later.


Frequently Asked Questions (FAQ)
Why is it important to spot late stage bases?
The later the base stage, the higher the risk of failure, and the pressure to continue to rally increases. This is due to a higher probability of institutions selling and taking profits after a large advance without any major correction.
The later the base, the more widely owned it is already for investors which means a lack of buyers.
What is considered a “late” stage base?
A later stage base would be considered the third stage or later. Just because it is a later-stage base doesn’t mean that it will fail, but the risk of failure goes up exponentially. At Traderlion, we are more likely to cut a loss much faster if a stock doesn’t gain traction out of a later-stage base.
When does the base count reset?
If the price of the stock drops below the lowest point of the preceding base, the base count resets back to stage one. This is why corrections are good as most stocks reset their base counts and we see a flood of fresh new opportunities.
What time frame do you use to count base stages?
We take a look at the weekly chart. Proper bases are formed over weeks, not days.
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