Who is Stan Weinstein? The book behind stage analysis
Stan Weinstein is a US market technician who published The Professional Tape Reader, an investment newsletter he started in 1972. He set out his method in Stan Weinstein’s Secrets for Profiting in Bull and Bear Markets, first published in 1988, and the four-stage approach in it is what traders call stage analysis.
The method is purely technical: price, volume, one moving average and relative strength, read on weekly charts. He checked the overall market and the stock’s group before any single chart. The idea is to own a stock only while it advances, step aside when it stalls and avoid it entirely while it declines. For an earnings-based approach, see CAN SLIM.
A famous analyst’s results are not typical, and copying his rules does not copy his outcomes. This guide describes his published rules with hypothetical numbers, and the method fails often.
The 30-week moving average: weekly charts and the daily equivalent
Stage analysis uses a weekly chart, one bar per week, with a 30-week simple moving average of the weekly closes. Weinstein used it for investors and a faster 10-week average for traders. The slope matters most: a flat average marks stage 1 or stage 3, a rising one stage 2, a falling one stage 4. Whether price is above or below the line comes second.
On a daily chart, traders often use the 150-day average as a rough stand-in, since 30 weeks hold about 150 trading days. It is not identical: the weekly average uses one close per week, so it moves more slowly and ignores midweek noise. The drawing below shows a daily chart in what stage analysis would call stage 2: price above rising averages stacked in order, near its 52-week high.
Unlike a moving average crossover, a single cross of the line proves little here. In a flat base, price can cross the average many times; the stage changes only when the slope and the structure change with it. On TradingView, add a simple moving average (SMA) with length 30 to a weekly chart.
The four stages of a stock, and what to do in each
The drawing at the top of this page follows one stock through all four stages. Each stage gives you a different job, and most of the method is knowing which one you are in.
Hypothetical: a stock falls from $70 to $40, then trades between $40 and $48 for 30 weeks while its 30-week average flattens near $44: stage 1. A weekly close at $49.50 starts stage 2 if volume confirms. Two years later the average flattens near $68 and price swings between $64 and $74: stage 3. A weekly close below $64 with the average turning down is stage 4.
- Stage 1: the base
- After a decline, the stock moves sideways, the 30-week average flattens, price crosses it back and forth and volume tends to dry up. It can last months or years. What to do: watch, don’t buy yet, and mark the top of the range.
- Stage 2: the advance
- Price breaks above the base and holds above a rising average, with higher highs and higher lows. What to do: buy early in the stage, on the breakout or the first pullback, and hold.
- Stage 3: the top
- After a long advance, the average flattens and price swings around it in a wide, choppy range. What to do: no new buys; traders sell, investors may sell part and keep a stop under support.
- Stage 4: the decline
- Price breaks below the top’s support and stays under a falling average, and rallies fail beneath it. What to do: sell, never buy or hold for a bounce. It is the only stage where his short sales belong.
How to buy a stage 2 breakout: the volume rule
The classic buy is the move out of stage 1: a weekly close above the top of the base, with price above a 30-week average that is flat or rising, never falling. Weinstein did not trust a breakout without a big jump in volume. He wanted breakout-week volume at least twice the average weekly volume of the previous month, or a few weeks of volume building to about twice the old average, followed by more on the breakout week.
Hypothetical: the stock above averaged 900,000 shares a week in the four weeks before the breakout. The breakout week closes at $49.50 on 2.1 million shares, about 2.3 times the average, so the volume test is passed. The same close on 1 million shares is a warning, not a buy. The drawing below shows the shape: a sideways drift, then a breakout bar about three times the average volume.
Check what sits overhead, too. Old resistance just above the breakout can stop the advance early; the farther back it sits, the better. Investors can buy half on the breakout and half on the first pullback toward the breakout level if volume eases on the way down. Traders also buy continuation breakouts: a new base inside stage 2, such as a volatility contraction pattern, then a breakout above it. See the breakout trading strategy and relative volume guides.
Relative strength: buy leaders, not laggards
Weinstein’s relative strength is not the RSI. It is the stock’s price divided by a market index, so it rises when the stock beats the market and falls when it lags, even if the stock itself is going up. A common way to read it puts a zero line at the ratio’s own 52-week average: below zero the stock has lagged, above zero it has led.
He saw a move from negative to positive relative strength as especially significant at a stage 2 breakout, and he passed on stocks with poor relative strength however good the pattern looked. The drawing below shows a related check: the relative strength line against the S&P 500 makes a new high before price does, a sign the stock was already leading.
On TradingView, type a ratio such as XYZ / SPX in Symbol Search to chart the stock divided by the S&P 500 index, then switch to the weekly timeframe. Do the same against the stock’s sector ETF to see whether its group is leading too.
Stop loss and position size: below the base, then under the average
Decide the stop before you buy. Weinstein put the first stop below the low of the last pullback before the breakout, and just under a round number rather than on it. He used no fixed percentage, but if the stop sits more than about 15% below the entry, the trade is too far from its protection: skip it or wait for a pullback.
Hypothetical: the breakout closes at $49.50 and the last pullback in the base bottomed at $44.10. The stop goes at $43.85, just under $44: $5.65 of risk per share, about 11%. Risking 1% of a $25,000 account ($250) allows 44 shares ($250 ÷ $5.65), a position of about $2,180. If the stop is hit, the loss is about $250 plus slippage. The position size calculator does this math.
Then trail. Leave the first stop alone until the first correction in stage 2 has ended and price is back near its high, then raise it under the 30-week average or under that correction’s low, giving the stock room while the average rises steeply. Example: the average has risen to $55 and a correction held at $57.40 before a new high, so the stop moves to $54.85. When the average flattens, the likely start of stage 3, tighten the stop to the latest correction low. Traders use tighter stops under the nearest reaction low, but even they never stay in a stock that breaks below its 30-week average, and nobody averages down. See stop loss and take profit.
Stage 4: why you stay away, and Weinstein’s short-sale rules
Stage 4 is where long positions do the most damage: a stock that looks cheap after a 30% fall can halve again. Weinstein’s rule was to sell when stage 4 begins, whatever the fundamentals or the dividend say, and never to buy a stock below a falling 30-week average. Don’t wait for a rally to sell.
His short sale is the mirror of the stage 2 buy: a stage 3 top with a flat or falling average, then a weekly close below the top’s support. Unlike a breakout, a breakdown does not need a volume surge to count, though heavy volume adds weight. He never shorted a stock above its 30-week average, avoided shorting stocks with strong relative strength or in strong groups, preferred a falling market and always protected a short with a buy-stop.
Hypothetical: a stock tops between $80 and $92 for months while its average flattens near $86. A weekly close at $78.40 breaks the $80 floor and the average turns down. The buy-stop goes just above the last rally peak inside the top ($86.70), at $87.10: $8.70 of risk per share, so a $250 risk allows 28 shares. A gap up on news can jump past the stop, and a short’s loss has no ceiling; read short selling first. For most readers, stage 4 is simply a stay-away rule.
When stage analysis fails
Stage analysis fails often, and a failed breakout looks exactly like a good one in its first week. Hypothetical: the stock closes at $49.50 above its base, but on 1.1 times average volume, with relative strength still below zero. Two weeks later it closes back at $46.00 inside the base, then drops to the $43.85 stop. With 44 shares, the loss is about $250, 1% of the account: planned and survivable.
The common failure cases:
- False stage 2 breakouts: a close above the base that falls back into it within a few weeks, often on weak volume, with poor relative strength or straight into old resistance.
- Choppy, flat averages: in long stage 1 bases and stage 3 tops, price crosses the average again and again; each cross looks like a signal, and none is.
- Late entries: buying far above the average, deep into stage 2, puts the logical stop too far away and the risk too high.
- The market’s own stage: when the overall market is in stage 4, most breakouts fail, which is why Weinstein checked the market and the group first.
- Lag and gaps: weekly signals are slow, a stock can fall a long way from its high before the average turns down, and a gap can skip past any stop.
Using stage analysis with shorter timeframes
Stage analysis is a weekly method, but day and swing traders use it as a filter: take long setups only in stocks in stage 2 on the weekly chart, and skip stocks in stage 4 however good the intraday picture looks. The drawing below shows the same top-down idea at a smaller scale, with higher timeframes beside a 5-minute chart. See multi-timeframe analysis.
UpTickFlow, our invite-only TradingView indicator, can serve as a second check on intraday timing, so weigh this accordingly. It does not label Weinstein’s stages or screen stocks. On 5-minute to 1-hour charts it waits for a candle to close at a level, draws an entry, a stop and a target before the trade, scores the setup from 0 to 100 and stays quiet in chop.