Over the last couple of months, we discussed about identifying a correct buy point using common chart pattern/base formation such as cup-with-handle, double bottom, and flat base. Along with the type of base, it is important to understand the stages of base.

Stages begin at one and increase with each subsequent base pattern formed. The magnitude of the move between two base patterns will determine whether the stage moves numerically or alphabetically. If the price move from the pivot point of the prior base to the left side high of the current base is 20% or more, the stage will increase by a factor of 1—for example, from Stage 1 to Stage 2.

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