Big and ugly

As any trader (with a few years of experience) who has had a trading scar or two will have learnt, the stock market is not a slot machine that pays out to just anyone.

Many traders, the likes of which we have been seeing enter the market since lockdown in 2020, will often come into the market, trade way too much, ignore risk, have some wins and start to feel invincible. Then Mr Market takes a swipe and many of those traders - thinking this was easy money - will have been dealt the harsh lesson of how the market works.

Anyone can place a trade on a stock.
There is not too much that is needed in the way of education to understand the mechanics of physically placing a trade.
However, there is a lot to learn in understanding how to make money from a trade - and how to deal with the psychology of a pullback during a trade.

The stock market is the Biggest Intellectual Game around and it will seductively lure anyone even slightly interested - while giving them a false sense of security.
Unfortunately, most newcomers nowadays are unprepared and unwittingly think trading is easy.
A few winning trades and they are lost in the euphoria and start increasing the position size and number of positions - and then discover trading is not actually so easy afterall.

There are many components to trading, some of which we have previously discussed but one that is often overlooked is the ugly stage of price.

The Ugly Phase

This is when price is not trending - and so many traders ignore the chart at that point.
However, this is when the chart is telling us price is forming a foundation for a new trend to build from.
Not all bases will provide a good platform for a trend to develop.
However, when trends do develop, having a good base is key for the stability of future price action.

Over the last few months, many stocks have taken a rest and started forming bases.
Use this period to find the stocks making a solid base and offering a low-risk opportunity.

As you know, we count flag formations over a period of 2-11 bars.
After that it is a breather but after 20 bars we consider it a consolidation (base).

Unlike a flag, a base will often be ugly.
What we are looking for is low volume overall but especially on selling days, a good duration for a base, a good trend prior to the base and ideally black volume bars before the breakout.

And we want to buy near support so that we have an exit point.

The above method is mainly suited for swing, as it is technical, but can be used for growth stocks too.

Let's go trade!