Basing of a stock or security in stock trading is said to occur when it displays a little upward movement or downward movement in its price pattern, hence resulting in a flat line or sideways signature.
Frequently in technical analysis, the term basing is used to depict the duration wherein a stock or security is consolidating after observing swift growth or a sudden decline in the share market.
Such stocks or securities generally have the supply and demand in equal amounts.
In the case of some stocks, the base can last for a long time prior to the reversal of trend can be noted.
What is the significance of base?
The general question that lingers in the mind of traders is what stocks to buy or what stocks to sell.
In such a circumstance, finding out a pattern such as a basing pattern can be very significant.
A base is vital to the upward trend of a stock price in the the share market.
A strong base pattern points out a solid foundation upon which stocks can start on big.
Such a base pattern happens when the price of the trading stocks drops after which it consolidates over duration of time which may extend to weeks or months.
Take action at the basing stage
When it is obvious that a stock is basing, it is worthwhile to create a list of stocks which are expected to breakout of the trend and trend upwards and also set a price level for the same.
Another point to remember is to avoid buying the stocks when they are in the base and do only when they break out.
Stocks that trade sideways thus exhibit a base pattern and break out of that pattern are good options to buy after the breakout as it gives the trader a minimal or lower risk option. This is so sinceit is expected that such a stock will continue with the trend.
Technical analysts recommend that the longer the base of the stock, it is the better. When the stock prices are basing, those stocks are good for trading.
When there is a breakout from the basing pattern, a new bull market begins.
It is necessary to understand the market and trade accordingly.