Two ways in
You have done the hard part. The market is helping (lesson 3), the sector is strong (lesson 4), and the stock is a leader (lesson 5). Now: when do you buy?
Weinstein used two entries, and almost every good Stage 2 purchase is one of them:
- The breakout: the week a stock leaves its Stage 1 base and starts Stage 2.
- The pullback: the first dip back toward the breakout level or the rising 30-week line, after the breakout has proved itself.
Both have the same idea underneath: buy when the trend has shown its hand, and at a price where you know exactly where you would be wrong.
The breakout
A base is a range: for weeks or months the price bounces between a floor and a ceiling while the 30-week line flattens. The breakout is the week the price closes above the ceiling: the moment buyers finally overwhelm everyone who was waiting to sell at that level.
Look at the volume strip under the price. The breakout week stands out, and that is what you want to see.
Volume tells you who is buying
Volume is the number of shares traded. It is the closest thing on a chart to seeing who is buying:
- Heavy volume on the breakout means many buyers paid up at once. That is usually large investors: funds that can't build a position in a day and will keep buying for weeks.
- Light volume on the breakout means the price rose without much buying. It can be real, but it is easier to reverse.
- Light volume on a pullback is a good sign: the sellers are few, and nobody is rushing for the exit.
Weinstein's guideline was that a breakout should come with at least double the stock's normal volume. Here is what a loud one looks like.
The pullback
After a breakout, many stocks come back toward the level they broke out from, or toward the rising 30-week line, before they move on. That dip is the second way in.
What makes a good pullback:
- It stays above the breakout level or the rising line: the new uptrend isn't broken.
- It comes on lighter volume than the advance: sellers are few.
- You buy when the price turns back up, not while it is still falling.
The pullback's advantage is the stop: it can sit just under the pullback's low, much closer than a stop under the whole base. Its drawback is that the strongest stocks sometimes never pull back at all.
The breakout that failed
Not every breakout works, and the ones that fail often look the same at the start. Here is one worth studying.
Two warnings came early: the breakout had no volume behind it, and within weeks the price was back inside its old range. The first was a reason for caution. The second was the moment you would have been wrong, and a stop under the base would have gotten you out long before the real damage.
Early beats late
The best entries come early in Stage 2: at the breakout, or on the first pullbacks. A stock that has already run far above its base and its 30-week line can still go higher, but your stop has to sit far below, and there is less of the move left. Our screens flag stocks that are still early in the stage so you don't have to measure it by eye.
Your entry checklist
- Market helping, sector strong, stock a leader (lessons 3–5).
- A clear base, and a weekly close above its ceiling, or a pullback that has turned back up.
- The 30-week line flat-to-rising, and the price above it.
- Volume heavy on the breakout, light on the pullback.
- Early in Stage 2, not after a long run.
- Stop decided: under the base, or under the pullback low.
The screener filtered to stocks in Stage 2 that are still early in the move, where breakouts and first pullbacks happen.
Questions people ask
What is a Stage 2 breakout?
It is the moment a stock leaves its Stage 1 base: the price closes above the top of the range it has been stuck in, the 30-week average turns up, and volume jumps. Weinstein treated it as the best time to buy, because it is when a new uptrend proves itself.
Why does volume matter on a breakout?
Volume shows how many shares changed hands. A breakout on heavy volume means many buyers were willing to pay higher prices at once, often large investors. A breakout on light volume can happen with very little buying, and is easier to reverse.
Is it better to buy the breakout or the pullback?
Both work, and they suit different people. The breakout gets you in first but you buy into strength. The pullback gives a lower price and a closer stop, but some strong stocks never pull back. Many investors buy part at the breakout and add on the first pullback.
Where should I put my stop-loss on a breakout?
Below the level that would prove the breakout wrong, usually under the base the stock broke out of. For a pullback entry, under the low of the pullback. Decide it before you buy, and size the position so that being wrong costs an amount you are comfortable with.
What if I missed the breakout?
Wait for a pullback, or move on. There is always another stock breaking out somewhere. Buying a stock that is already far above its base and its 30-week line means a distant stop and less room left.