Contact Us
Your Cart
Your Account
Categories:
  
Links:

Trading Basics
Learn Swing Trading
Stock Market Stages
Trading Stock Trends
Moving Averages
Candlestick Charts
Stock Chart Volume
Support & Resistance
Relative Strength
The Strategy
Trading Strategy Traders Action Zone
Trading Pullbacks
Entries and Exits
Market Timing Strategy
Chart Patterns
Money Management

Stock Market Stages

Stage Analysis on a Stock Chart

To trade stocks successfully, you must first understand the four stock market stages that individual stocks and the overall market go through.

These cycles tell you if you should be long, short or in cash.

Once you are able to identify what stage it is in, you can then trade accordingly to those characteristics.

After a while you won’t even have to think about whether you should be long or short. You will know, without question, exactly what you should be doing NOW. You will either be focusing on long positions, short positions, or you will stay safely in cash - just by glancing at a chart!

Here are the four stages that stocks go through.

This happens in all time frames whether it is a monthly chart, weekly chart, daily chart, or an intraday chart.

market stages graphic

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:

chart of stages

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.

That’s all there is to it. I told you that trading with stock market stages would be painless!


Basket:
Your Cart is Empty

News:
10/29/2008
The Five Most Reliable Candlestick Patterns
9/28/2008
How To Read Charts
More... 
     
Articles
How To Start Trading Options
Dividen Calendar
Trading Journal
24 Rules of Trading
How To Scan For Stocks
How To Read Charts
How to Trade Gaps
Multiple Time Frames
How to Short Stocks
Fibonacci Retracements
Stock Trading Lessons
Trading with TICK & TRIN
List Sectors & Stocks
Tools of the trade
Master Bollinger bands
Audio Webcast Course
Position Sizing Calculation
Option Strategies
Option Playbook
FOREX
ForexFreedom formula Video
Money Management Video
REAL ESTATES
REO Listings for Bank
Buying REO property
Get Free Credit Reports
find your home value

Submit Your Site To The Web's Top 50 Search Engines for Free!



Powered by D2 StoreFront.


free spam filter

Page Rank Checker | The Link Exchange