Stan Weinstein: Stage Analysis Trading Strategy
Updated: Nov 3
Stan Weinstein highlights how preparation, discipline and decision-making affect trading outcomes. Psychology matters most when it supports a tested method, predefined risk and consistent execution.
Stan Weinstein: In This Guide
Key lessons and practical rules
The original Financial Wisdom guide and media
Evidence, limitations and risk controls
Frequently asked questions
Related guides and authoritative sources
Key Takeaways
Judge decisions by process as well as short-term outcome.
Use written rules to reduce emotional improvisation.
Review mistakes with a journal and measurable evidence.
Discipline cannot rescue a method without positive expectancy.
Original Financial Wisdom Guide
Background and Core Ideas
Stan Weinstein - Secrets To Profiting In Bull & Bear Markets.
October 19th 1987 you would have been forgiven for not knowing the name Stan Weinstein, but just a few weeks later he became famous for predicting a 31% crash in the stock market.
Did he have some form of psychic power you may ask, rather, he simply used his chart reading skills, in particular he studied and applied the ‘cyclical stage analysis theory’ which we will cover shortly.
Some say this book is the only book you will ever need to trade the markets, let’s look inside the mind of this trading legend….
In this animated video we present ‘Secrets for profiting in bull and bear markets’ by Stan Weinstein.
After predicting the 1987 stock market crash Stan Weinstein appeared in interviews on television shows like ‘Moneyline’ and ‘Wall street week’ and inspired sales for this book.
In one interview he said;-
″I don’t want to be a guru, I don’t want the idiot investor who’s looking for the perfect stock strategist. The stock market is sort of like gambling, it’s another form of probability playing. I’m a real good probability player.″
Like that of Jesse Livermore and Nicolas Darvas, Stan Weinstein looks to identify the market trend, identify strong industry groups and align the best stocks within the groups to the trend direction.
Practical Checkpoint
Define the setup, entry and invalidation level before acting.
Compare the potential payoff with risk-reward planning.
Set the trade size using consistent position-sizing rules.
Rules and Practical Application
Stan believes that these stocks coupled by following the trend provide an edge, whilst used in conjunction with stop losses to manage risk you have a profitable strategy.
Before we look at the selection criteria used by Stan, let’s quickly summarise the chart presented early in the book which is the foundation of his teaching.
First, we have a trading range, where prices move in a sideways motion forming a channel of support and resistance.
We then see the price breakdown through the support level, give a brief pullback and then continue its decent downwards staying below its 30 week moving average.
Again, we see the price enter a trading range but this time breaking out above the resistance level, a brief pullback and then continuing its ascent whilst remaining above its 30 week moving average.
Stan provides more detail in his book but there are three key points that are worth making note of;
One. The longer the duration price is spent in a trading range, the more significant the breakout of the channel.
Two. The greater the expansion of volume at the point of breakout, the more bullish the signal.
Three. The price must be above the 30-day moving average in order to enter a buy position.
Evidence Check
Is the sample broad enough to include difficult markets?
Do the results include spreads, fees, slippage and failed signals?
Could hindsight, survivorship or selective examples explain the result?
Evidence and Examples
Understanding the principles within this diagram is paramount in order to apply Stan Weinstein’s strategy.
Similarly, trendlines are given particular significance and the level of significance is determined by how many times price touches the trendline, or in this case the support line.
Anything more than 3 touches is deemed significant according to Stan. Here we have 4 touches of a rising support line, but when the price violated the support line here on the 5th attempt, alarm signals should have gone off.
Breaks of a significant trendline like this could be a signal of a major change, especially on a weekly or monthly time frame.
Stan also suggests the direction of a trendline can determine the significance of a break, for example, here we can see a declining trend line and a breakout above the trend, and although this is still a bullish signal it is less bullish than a horizontal breakout which we can see here.
In terms of timeframe when considering a particular trendline, Stan prefers to look at the weekly chart and refers to himself as an investor, although categorises his trades into short, medium and long term cycles.
For example, he considers short term as being a one to six week holding period, medium term from six weeks to four months and long term from four to twelve months.
This is what Stan refers to as intelligent trading timeframes, anything less like day trading is only smart if you want to make your broker rich.
Regardless of price action and trendlines Stan says the stock has to be in one of four market stages.
Risk and Limitations
Here we can see stage 1 the basing phase, stage 2 the advancing phase, stage 3 the topping phase and stage 4 the declining phase.
Stage 1 and 3 is an indication that an equilibrium has been achieved and price will consolidate in a sideways fashion, this is accompanied by the flattening of the 30 week moving average line.
The preferred time to buy a stock would generally be within this green shaded area whilst the preferred time to sell a stock would be in this red shaded area, although further considerations need to be made to find the optimum time to buy.
In many cases (which Stan refers to) the optimum time to buy in the zone is here on the exit of stage one, and perhaps a less preferable time to buy in the zone is here.
Conversely, the best time to sell or short a stock would be here on the exit of stage 3 and the lesser preferred time to short a stock would be here.
Remember, Stan is all about playing the odds and by keeping within this framework you move the odds in your favour…
With some of the basics established let’s look at some more strategy specific examples used throughout the book.
This chart of the company Goodyear is taken directly from the book, we can see here we have the 30 week moving average line and the breakout point.
Stan identified this breakout point for numerous reasons, for example, the price broke out of a resistance line shown here, whilst also showing an increase in volume that pushed the price above the 30 week moving average.
Summary of the Original Guide
This was classed as a stage 1 basing phase which eventually broke into a stage 2 advancing phase.
The stock went on to double in price within 9 months.
Again, this example is straight from the book, the quality is not great but we can get further idea of the strategy in action.
This company Harrah saw a breakout from a stage 1 base, through resistance, showed relative high volume and an increasing 30 week moving average.
The stock once again entered a stage 2 advance and increased around 100% in 9 months.
The two examples we just seen were based on a stage 1 breakout around the optimal zone, this is what Stan calls the ‘investors way’.
Stan points out that after a general market correction there are many examples of these stage 1 breakouts, however, during a mature bull market there are far less, at which point he switches tact slightly. He calls this the traders way and suggests stocks are more often than not purchased here, within the stage two advance.
The example from the book can be seen here and shows how the trend may look in the stage two advance. Notice how the principle remains the same, a consolidation in price and a breakout above resistance. The key difference here is the already mature rising 30 week moving average.
Let’s look at an example provided in the book.
Summary of the Original Guide
Despite the quality of the chart we can work out the concept Stan discusses.
Here we can see the stage 1 basing phase and the eventual breakout point leading into a stage 2 advance.
A few weeks later we see a stage 2 consolidation period on top of an already advancing 30 week moving average line. At point B here we see the breakout through resistance which is accompanied by a typical spike in volume.
20 weeks later the stock advanced 200% without retreating to the moving average. This Stan says is the trader’s way.
He also suggests investors should be looking at taking most of their trades from stage 1 breakouts, whereas traders should be looking for breakouts during a stage 2 advance most of the time.
At this stage the key points to take away from Stan’s strategy are; Check the price is above the 30 week moving average, wait for a breakout of consolidation above resistance and ensure volume is considerably higher than previous weeks.
There is however a 4th that completes the foundation of the strategy. Let’s take a look.
Stan introduced the relative strength indicator into what he calls the ‘triple confirmation pattern’ seen here.
Stan Says;
Summary of the Original Guide
“I discovered this technique long ago and introduced it in The Professional Tape Reader back in the mid-1970s. Be aware that while this formation produces some unbelievable winners, it is not for short-term trading”.
In this example we see a stage one breakout with the previous characteristics, consolidation, volume and price breaking above the 30 week moving average. Only this time we see the Mansfield Relative Strength indicator here.
Stan says adding this indicator to the weekly charts turns a good purchase into a great purchase.
Ideally the relative strength indicator should be in negative territory or very close to zero. Then, as the breakout occurs the indicator should surge from zero into positive territory.
The alignment of all, turn the odds considerably in our favour.
This time rather than show an old example from the book let’s see if the strategy has stood the test of time and look at a recent example of the ‘triple confirmation pattern’ in action.
Here we show the popular company Tesla, notice at the end of October 2019 the price surged almost 30% in the space of a week, it broke through a long line of resistance on increased volume above the 30 week moving average. Perhaps more importantly it broke out of a stage 1 consolidation period into a stage 2 advance.
The final piece of the triple confirmation pattern is here, the Mansfield relative strength indicator which broke from negative into positive territory.
The price as of today, has since increased from 325 to 800, an increase of 160% in the space of 16 weeks. This is a great example of the triple confirmation pattern in action.
Summary of the Original Guide
As a bonus for early viewers, we have found a company that has set up nicely against the pattern for the week commencing the 17th of February.
The company is called Steris which offers services and products for the prevention of infection. With the current coronavirus situation coupled with Stan’s triple confirmation pattern this could be a very interesting stock indeed.
Steris is currently in a stage 2 advance and has broken out of consolidation through resistance, volume is higher than other weeks and the Mansfield relative strength indicator has increased from negative into positive territory. Not forgetting, the price is also above and being supported by the 30 week moving average line.
I would love to hear your thoughts on the stock in the comments below, with the set-up and story Steris is offering we will be watching keenly on how this develops.
Stan provides a chapter on how to sell, but for this video we will provide a quick summary and dedicate more time on selling rules in another video.
Here Stan shows a stock called Avon, we can see here the price was in a stage 2 advance, it then stalled into a stage 3 topping phase, broke through 2 lines of resistance and the 30 week moving average turned down. This is a clear sell signal. The price the entered a stage 4 decline losing around 200% over the next 12 months.
Notice how the Avon chart closely resembles Stan’s stage theory analysis.
Stan says;
“When a stock turns negative, it's a sale whether you have a profit or a loss. The bloodless verdict of the marketplace doesn't know what you paid for the stock and doesn't care. You have to learn to be objective and dispassionate”
Summary of the Original Guide
This is exactly what this chart, and Stan’s methodology suggests. Sell on objective pieces of information, stay disciplined, consistent and don’t fall in love with the story of a stock.
Let’s take some quick notes from other sections of the book which are worth further consideration and can be discovered by purchasing the book in the link below.
Look for and align strong industry groups with stock selections.
Diversify across industry groups.
Consider shorting stocks based on them entering a stage 4 decline.
Ensure stop losses are used and place accordingly within the structure of support and resistance lines.
And finally, consider buying pull backs after a strong breakout.
In summary, Stan Weinstein book is packed with over 340 pages and is arguably the closest you could get to a book comprising of a complete trading strategy.
As such I give it 5 stars.
Practical Limitations
Historical examples, book claims and indicator results are educational illustrations rather than forecasts. Outcomes depend on the market, timeframe, data, transaction costs, financing, taxes and execution assumptions. Test complete rules across varied conditions and define the maximum acceptable account risk before taking a position.
Put This Into Practice
These ideas become more useful when selection, entry, stop placement, position sizing and trade management form one repeatable process. The Financial Wisdom Trading Blueprint connects those decisions in a practical weekly framework.
Frequently Asked Questions
Can discipline alone make a trader profitable?
No. Discipline helps execute a valid method consistently, but it cannot create an edge where none exists.
How can trading behaviour improve?
Use written rules, position limits, a decision journal and regular reviews based on a meaningful sample of trades.
Further Reading
References and Further Reading
Educational information only. Trading and investing involve risk, including the possible loss of capital. Examples are illustrative, not guarantees of future performance, and nothing in this article is personalised financial advice.
About the Author
Written by Gareth, MBA
Gareth, founder of Financial Wisdom, has more than 30 years of personal trading experience. He competes in the United States Investing Championship, creates award-winning trading content and has been featured in Technical Analysis of Stocks & Commodities.
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