The 4 stages every stock moves through

In the 1980s, Stan Weinstein noticed that almost every stock cycles through the same four stages. Learn them once and you will never look at a chart the same way. AlphaGrid tags stocks with their stage automatically — but you should understand what the tag means.

Stage 1 — Basing

After a long decline, the stock stops falling and drifts sideways. The moving averages flatten out. Nothing exciting happens — which is exactly the point. Smart money is quietly accumulating.

Stage 2 — Advancing (the one you want)

Price breaks above the base and starts making higher highs, trading above its rising 50- and 200-day averages. This is where the money is made — the trend is up and confirmed. Most winning trades are simply 'buy Stage 2, hold, exit when it ends.'

Stage 3 — Topping

The advance stalls. Price chops sideways at high levels, the averages flatten, volatility rises. This is distribution — smart money selling to latecomers. Time to tighten stops.

Stage 4 — Declining

Price breaks down below its averages and trends lower; the averages roll over and point down. This is the stage to avoid — no matter how cheap it looks.