While we should use minimum indicators on our screen for any kind of analysis ; identifying the stage in which the stock is currently in would need only four
What are Stages of Stock?
A stock moves through 4 stages during its lifecycle from a rise to fall in a particular time period. While the have many names, we will refer to them as Stage 1, 2,3 and 4
Why is it important to understand the stage in which the stock is?
Ideally as a swing trader looking to build a long position, I would want to be in a stock which has just started its upmove (aka stage 2) and I will stay far away from a stock in stage 4 (steep fall or no buying)
How to identify which stage is a particular stock in?
Following on weekly timeframe
10 Simple Moving Average
30 Simple Moving Average
20 Simple Moving Average on the Volumes
Why these indicators? Simply put these indicates would give us an idea of the velocity of share price i.e change in speed over weeks
Basically, a rising 10SMA line in a weekly chart tells us that the stock price has seen an average increase in the past 10 weeks. The steeper the slope, the sharper would be the rise. That’s it!
Note: The movement from stage 1 to stage 2 is always supported by big volumes
The criteria to be checked on weekly charts:
Stage 1 - Price between 10SMA and 30SMA
Stage 2 - Price>10SMA>30SMA with Rising 30SMA
Stage 3 - Price between 10SMA and 30SMA (Check prior stage to distinguish from stage 1)
Stage 4 - 30SMA>10SMA>Price
Here is one example of HEG (2017-2020):
Yellow line - 30SMA & Blue line - 10SMA
RAIN (https://twitter.com/capsuletrader/status/1602671162223652865 ) is another example
Now that you know how it is done...Do share your learnings in the comments!
Commentaires