Basing
Updated on March 17, 2023
Basing is a technical indicator used by traders and occurs when a stock’s price moves sideways after a continuous period of falling.The stock is said to form a ‘base’ or flat pattern which indicates very little or no upward or downward movement. It also results in a decline in volatility and it can result in a reversal of the stock price. Stocks form support and resistance levels in the consoldition or basing period which might indicate entry and exit points for traders or large institutions.
Significance Of Basing
Basing helps traders figurw out the right entry and exit price levels of stocks. Some key characteristics of basing which help traders are :
a) A stock is expected to move upwards after formation of base
b) Basing signifies equal amount of demand and supply for the said stock
c) Consolidation may take some time, even months or years, after which a strong momentum may take it on an upward trajectory
d) Seasoned traders wait for a breakout to happen after basing and buy only when there is a clear trend
e) Waiting for prolonged basing period also lowers risk of trading in the stock
