Basing is the period when a stock moves a little. The movement can be either up or down. It happens when the stock is neither rising nor falling completely but are instead moving sideways. This creates specific shapes on the stock charts like a “cup with a handle” shape.
How Basing Works
During the basing phase, a stock’s price can remain stable because there is a balance between the buyers and the sellers. The stock does not make a big movement in upward or downward direction. If a stock has recently increased or decreased a lot, it often goes through a basing phase before it makes another movement.
Benefits of Understanding Basing
- Market Stability: A basing stock indicates that supply and demand are equal, or that there is no strong push in either direction. When sellers and buyers are in equilibrium, the stock does not see wild price movements.
- Anticipating Future Movement: After a stock completes its basing period, it has the potential to either rise or fall dramatically. Identifying this phase helps investors make good decisions regarding when to get in or get out of a trade.
Example
If a share goes up from ₹100 to ₹200 and then fluctuates between ₹190 and ₹210 for weeks, it is experiencing a basing phase. It can break higher than ₹210 or lower than ₹190 when it picks momentum.
Conclusion
Basing is a natural phase in stock trading where the price of the stock moves steadily without any major changes. It often happens after a big price movement has taken place and can help investors predict future trends.