Ticker&TapeBase count: early vs late stage
Every time a stock builds a new base during a long advance, the base count goes up by one. Early bases offer the best odds. Late ones are riskier, because by then everyone knows the story.
How to count
The first base after a stock emerges from a long decline or a long sideways period is the stage 1 base, or first-stage base. If the stock breaks out, advances and then forms another base, that one is stage 2. The next is stage 3, and so on.
Count on the weekly chart. A new base counts when the stock has advanced meaningfully, usually 20% or more, above the previous base's pivot before correcting again.
Why early bases work best
In the first and second stages, few investors have noticed the stock. Large funds are still building positions, which means steady demand for months. The company's story is new, and expectations are still moderate.
By the third or fourth base, the stock has probably doubled or tripled. It is well known, many funds already own it and expectations are high. One disappointing quarter can trigger heavy selling. Late-stage bases also tend to be wider and looser, a sign the stock is tiring.
A practical guide
A simple way to use the count:
- Stage 1 and 2: the best odds. These are the bases to focus on.
- Stage 3: still possible, but be more selective and quicker to sell if it fails.
- Stage 4 and later: these fail often. Many traders skip them or use smaller positions.
When the count resets
The count goes back to one when the stock undercuts the low of its previous base. That means the stock has given back its prior advance and is starting a new cycle.
A deep correction, often 40% to 50% or more, during a bear market usually resets the count as well. On Ticker&Tape, a decline of more than 50% is labeled a deep correction, which is a clear sign to restart your count.
A base on base is often treated as part of the same stage, since the stock barely advanced between the two.
Using base count with other tools
Base count is not a rule by itself. Combine it with the market: early-stage bases often form right after a market correction, when a new uptrend begins. That is why a new uptrend, confirmed on the breadth page, is a good time to look for first and second-stage bases among the strongest stocks.
Common mistakes
- Forgetting to count and buying a fourth-stage base as if it were a first.
- Not resetting the count after the stock undercuts its previous base low.
- Counting every small pause as a new base.
Key points
- First and second-stage bases have the best odds; third and later fail more often.
- Count on the weekly chart; a new base follows an advance of about 20% or more.
- The count resets when the stock undercuts its prior base low or after a deep correction.
Check what you learned
Answer at least 2 of 3 correctly to complete the lesson.
1. A stock broke out of its first base, advanced 30%, built a second base, broke out again and advanced 25%. It is now building another base. What is the count?
Each new base that follows an advance of about 20% or more adds one to the count, so this is the third base.
2. Why do first and second-stage bases offer the best odds?
By the third or fourth base the stock is well known and widely owned, so one disappointing quarter can trigger heavy selling.
3. When does the base count reset to one?
Undercutting the prior base low means the stock gave back its advance and is starting a new cycle. A decline of more than 50% is labeled a deep correction.
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