Page 1220 - How to Make Money in Stocks Trilogy

Don’t Invest Blindly: Use Charts to See the Best Time to Buy and Sell 203

By the time a stock starts forming a third- or fourth-stage base, it could be
getting a little long in the tooth. Here’s why:

• The stock itself has already made a big move. It could be up 100%
or more. How much higher can it really go before institutional investors
cash in their profits and put the stock into a deep decline?
• The overall market may be running out of steam. When you get into
the third year of a bull cycle, the market tends to get more volatile and
choppy. That impacts the leading stocks, and they may also struggle to
move higher.
That’s the basic reason you want to be careful about buying stocks as they
break out of a third- or even later-stage base.
Late-stage patterns can work and sometimes do lead to nice gains. But
successful investing is about keeping the odds in your favor. So just under-
stand that late-stage bases involve more risk. If you buy a stock on a late-
stage breakout, you might cut your losses sooner—say, at 3%–4%—if the
stock fails to gain traction.

See How to “Count” Bases
This is easier to “show” than “tell,” so if you’d like to learn more about
late-stage bases, check out a short video on that topic at
www.investors.com/GettingStartedBook.