T2W Trading Community

Here is a chart of W.S.Atkins (atk) where all 4 stages can be easily identified -

There are two very significant advantages for an investor in using this simple Stage Analysis. The first is, of course, the ability to identify the right time to buy (or short-sell) the share (“timing is everything”) and the second is the ability to avoid ever again buying a share that is in a Stage 4 decline. That alone can save a lot of pain and ‘000s of pounds; and the third is the ability to identify the right time to short the share for maximum profit.

A large number of private investors create a lot of heartache for themselves by closing out their winners far too early and for small profits - yet they will often hold on, in some form of ‘macho’ demonstration, to their losers and racking up ever increasing losses. Examine your own experience; how many times have you held a share that you should have sold at 700p only to watch it drop to 500p, then 300p and then 100p? And then worse still – oh calamity – to have bought more at 500p and again at 300p because “if it was good value at 700p it must be even better value at these prices”.
And then you dump out (at 70p or so in the above chart) at a large loss just as the Stage 1 in that share is about to start!

Does any of that sound familiar? Well with Stage Analysis you need never again suffer this sort of nightmare. Stage Analysis lets you take charge and adopt a path to consistent trading profits – in both bull and bear markets.

2. VOLUME  -
Once you have identified a Stage 2 breakout the next most important factor to concentrate on is volume. If you use this tool properly then you will be well on the way to separating the so-so buys from the potentially explosive big winners.

Volume is a gauge of how powerful the buyers (or sellers!) are and, when read in conjunction with what is happening to the share price, is a powerful indicator in its own right. Shares can fall under their own weight (there does not have to be an increase in volume) but for a share price to advance it takes a lot of buying power. Try pushing a boulder uphill; it takes a large expenditure of energy to move it up the hill but let it go and it can build up plenty of downside momentum on its own !

The rule is very simple: Never trust a breakout that isn’t accompanied by a significant increase in volume.

The diagram below shows exactly how a healthy volume pattern should unfold –

But beware, not all high volume is necessarily good news. High volume which is co-incident with a falling share price at the start of a stage 4 downtrend can just be helping to get that down-hill boulder running even faster.

Then again, high volume at the end of a long and/or fast run down (a Stage 4 downtrend) in the share price can be ‘exhaustion’ volume as the last of the hard-nosed stayers finally jump ship and dump their shares at the bottom – this usually is a pre-cursor to a Stage 1 phase.

Look at the chart of Charter plc.(chtr) See how the exhaustion volume (arrow 1) showed where the bottom was formed and how it increased again (arrow 2) to move it into Stage 2 and a perfect buying point. Notice how the occasional volume spike since then (arrow 3) has encouraged its rise. This share was a ‘buy’ at 75p in August 2003 and is still a hold at 330p!