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Last Updated : Sep 29, 2019 03:37 PM IST | Source: Moneycontrol.com

How to trade stocks: What is a base? And how to use stock charts to win big

All of these bases have strict requirements and particular specifications. Yet, all of them will show the same signs of institutional support and buying

Moneycontrol Contributor @moneycontrolcom
Representative image
Representative image

William O'Neil India

If you are new to investing and struggling with the features, screens, and unique charts of MarketSmith India, you may have wondered what a "base" is. You may have also wondered why MarketSmith India uses the term a lot in its market-related coverage.

Treat "base" as the most important four-letter word in your investing vocabulary.

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Are you willing to learn about, then find, the good bases? Can you muster the courage to buy shares on strong breakouts to new highs amid a general market uptrend? If yes, you stand a great chance of delivering big returns to your stock portfolio.

Why bases form

A base visually represents a great stock's need to take a break. After a nice run-up in price, preferably 30 percent or more, such a stock will decline – in most cases, mildly.

This is often the beginning of a new base. At some point, demand among mutual funds, banks, hedge funds, pension plans, and the like suddenly spikes. So, does the stock's price. A breakout past a base's proper buy point begins.

Think of a base as similar to what mountaineers set up when they challenge the summit of K2 or Mount Everest. They do not go all the way up in one straight shot. Instead, they set up base camps along the way. Climb. Rest. Scale higher. Rest again. Climb again. Pause, then reach the top.

Charts Are A Must-Have Tool

You need to use good price-and-volume stock charts in order to spot the most reliable bases identified by MarketSmith India. They are the cup with handle; the double bottom; the flat base; the saucer; the base on base; the high, tight flag; the ascending base; and the IPO base.

All of these bases have strict requirements and particular specifications. Yet all of them will show the same signs of institutional support and buying. Bases reflect the human emotions of fear and greed, interacting together.

Following is the checklist for proper base patterns:

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Disclaimer: Information contained herein is not and should not be construed as an offer, solicitation, or recommendation to buy or sell securities. It is for educational purposes only.

Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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First Published on Sep 29, 2019 03:37 pm
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