Short positions taken early in a downtrend carry higher risk and higher reward than late in the decline. However, these issues also exhibit greater vulnerability to positive news shocks that reawaken bullish fervor and allow the process of base building to begin all over again.

These bottoms can be simple or complex, but they have one thing in common: New shareholders replace the old guard, in turn replacing fear with hope that will eventually turn into greed. Cookies collect information about your preferences and your devices and are used to make the site work as you expect it to, to understand how you interact with the site, and to show advertisements that are targeted to your interests. The middle of Stage 2 often prints a high-volume continuation gap that marks the halfway point of the uptrend. Let's examine the stages, identifying the attributes and outlining the types of positions that work best in each market phase. When it happens, the pullback trade offers outstanding reward:riskbecause the transition into the second stage tends to work with reliability, with few failed breakouts, allowing tightly placed stops.A brief education on Weinstein's principle lowers the risk associated with this myopia, enabling traders to make informed decisions when markets turn against their positions, as they do during ranges, correctionsand downtrends. An ascending triangle is a chart pattern used in technical analysis created by a horizontal and rising trendline. The technical dominoes fall, one after another, while trapped shareholders are forced to capitulate. Disillusionment and loss of faith characterize this uncomfortable period, which can take a long time to work through the system. However, there's no perfect time frame for the completion of a top, making it easy to get caught in poor reward-risk scenarios, especially with short sales looking to profit from a breakdown.

Registered Representatives associated with this site may only discuss or transact securities business with residents of states they are registered in. During this stage, there will usually be several swings between support at the bottom of the trading range and resistance at the top of the range.Legitimate topping patterns show active distribution because strong hands are taking profits and moving back to the sidelines. You can find out more about our use, change your default settings, and withdraw your consent at any time with effect for the future by visiting Cookies Settings, which can also be found in the footer of the site. Intermediate moving averages start to align with key support levels, adding energy to the subsequent breakdown, which sets off a positive feedback loop. Late-stage downtrends can turn into wars of attrition, with participants moving on to other opportunities.

However, high volatility also forces securities to fall far more rapidly than they rose, allowing perfectly timed short positions to book windfall profits. Each of these stages generates a variety of trading and investment opportunities that capitalize on current conditions. Base breakouts often trigger big gaps on high volume that stay unfilled for a long time, forcing longs to enter positions within a high consolidation pattern rather than a pullback that tests new support. This happens because market insiders take notice of the developing uptrend and use their special skills to shake out weak hands and late adaptors.These include white papers, government data, original reporting, and interviews with industry experts. Keep in mind that these concepts are time-frame independent, meaning they work equally well on intraday, daily, weeklyand monthly time-frame charts, making them excellent supportive tools for traders, market timers, and long-term investors. Stan Weinstein outlined the principles of stage analysis in his 1988 book, Stan Weinstein's Secrets for Profiting in Bull and Bear Markets. Even so, tops display similar characteristics that let traders and market timers make informed judgments about the security's direction.

Stan Weinstein's stage analysis offers market participants a powerful tool to identify current market conditions and to make rapid adjustments to strategies and risk-management practices. The stage often begins on high volatility but ends on low volatility because apathy and disinterest have taken their toll, dropping the security's volume to cyclical lows. The opinions of Financial Sense® contributors do not necessarily reflect those of Financial Sense, staff, or parent company, Financial Sense® Wealth Management.