What Is Stage Analysis? The Four Stages of a Stock Explained
A beginner's guide to Stage Analysis: the four stages of a stock's price cycle popularised by Stan Weinstein, and why most buying belongs in Stage 2.
Every stock that has ever had a big move went through a similar cycle. Stage Analysis, popularised by Stan Weinstein in Secrets for Profiting in Bull and Bear Markets, gives that cycle names, so you can tell where a stock is before you act.
The four stages
Stage 1: Basing
After a long decline, the stock moves sideways. Sellers are running out, but buyers are not yet in control. The long-term moving average flattens out.
Stage 2: Advancing
The stock breaks out of its base, ideally on higher volume, and starts making higher highs and higher lows. The long-term moving average turns up and the price stays above it. This is the stage where trend followers want to own a stock.
Stage 3: Topping
The uptrend loses steam. Price swings become wide and choppy, and the moving average flattens again. Buyers and sellers are back in balance, but at a high level.
Stage 4: Declining
The stock breaks below its top area and trends down, with the moving average now falling. Owning a stock in Stage 4 is how small losses become big ones.
Why the stage matters
The same chart pattern means very different things in different stages. A "cheap-looking" stock in Stage 4 can keep getting cheaper. A stock in an early Stage 2 trend has the wind behind it. Knowing the stage first stops you from fighting the trend.
Common beginner mistakes
- Buying in Stage 4 because the price "has fallen a lot"
- Holding through Stage 3 and into Stage 4
- Ignoring volume on breakouts
Stage Analysis is one part of the method we teach in our Intermediate: Swing Trading course.
Education only. Not investment advice. CIMS is not affiliated with Stan Weinstein.