Trend following · Intermediate
Stage Analysis (Stan Weinstein)
Every market cycles through four stages. Buy when it breaks out of the base into Stage 2 above a rising 30-week average, and sell when it rolls over.
Stan Weinstein described his method in "Secrets for Profiting in Bull and Bear Markets" (1988). It classifies any chart into one of four stages using a 30-week moving average and volume, so you only own markets that are in their strongest phase.
Why it works
Stage 1 is a base: the 30-week average is flat and price chops around it. Stage 2 is the advance: price breaks out above the base and a rising average. Stage 3 is the top: the average flattens and price swings wildly. Stage 4 is the decline below a falling average.
Most money is made in Stage 2 and most losses happen by holding into Stage 4. The method keeps you on the right side of the cycle.
The rules
Setup
- Weekly chart with a 30-week simple moving average (about a 150-day average on daily charts).
- Stage 1: a sideways base of several months with the average flattening.
Entry
- Buy the breakout above the top of the base when price closes above a 30-week average that is flat or turning up.
- Volume on the breakout week should be at least twice the recent average.
- Alternative entry: the first pullback to the breakout level that holds.
Stop loss
- Initial stop below the last low of the base or below the average.
Exit and management
- Trail the stop under each new correction low while in Stage 2.
- Sell when price closes below the 30-week average and the average starts to flatten (Stage 3 turning into Stage 4).
Filters that improve it
- Prefer markets whose relative strength against the index is improving.
- Avoid buying a breakout when the overall market is in Stage 4.
Worked example
Illustrative example on a stock: after nine months between $40 and $48, the 30-week average flattens at $44. One week the price closes at $49 on triple the average volume. The buy is at $49, the stop at $43.50 under the base. The trend lasts a year; the position is sold at $78 when price closes below a 30-week average that has stopped rising.
Illustrative numbers, not a recommendation.
Common mistakes
- Buying in Stage 1 because it "looks cheap": bases can last years.
- Holding in Stage 4 hoping for a recovery.
- Breakouts without volume, which often fail back into the base.
How to practise it
On Candlemind's indices and stocks use the 4H chart with a long moving average to classify the stage before each trade. Write the stage in your head: if it is not Stage 2 (for longs) or Stage 4 (for shorts), pass.
Pre-trade checklist
- Stage 2: price above a rising long-term average
- Breaking out of a multi-month base
- Volume clearly above average on the breakout
- Stop below the base
Frequently asked questions
What moving average does Weinstein use?
The 30-week simple moving average on weekly charts, roughly the 150-day average on daily charts.
Can stage analysis be used for shorting?
Yes. Weinstein recommended shorting Stage 4 breakdowns below a falling 30-week average, the mirror image of the Stage 2 buy.