A trader explains how to spot stage 2 uptrends using the 40-week moving average. Institutions shake out weaker traders during base formations that can last months. The first multi-month base after a strong move is the best setup for long-term positions.
From an asset management perspective, we're more longer-term traders. We want to have the longer-term trend in our favor when we're buying something or shorting something. Again, the gray is the 40-week moving average. It trends below it. So as you can see, the stock is in stage 2, and this is the uptrend with the base. That's just proper supply and demand digestion of a stock. Institutions accumulating stock off of weaker hands, you know, maybe day traders, short-term swing traders. But when institutions betting on a longer-term trend to happen, they'll keep accumulating and creating that support, which is the lows of the base. Sometimes there'll be undercuts, shakeouts, and that's institutions grabbing that stock from people, the traders getting shaken out. Eventually you have a base. This could be, you know, a few weeks, 5, 6 weeks, 7 weeks. It could be multiple months. Later on we'll talk about one of my favorite setups, which is that first multi-month base after this initial big move up into stage 2.
