This page is about showcasing flat base examples, it’s not meant to be a rehash of the technical details. Honestly, if you are looking for the best description of flat bases, you will be better off checking out TraderLion’s version. Here is the link.
But know this, flat bases often form after a strong move. During this consolidation, buyers or sellers eventually build up enough pressure so the stock either breaks out, into an uptrend or breaks down.
Let’s start.
At the end of 2008 Amazon had (almost) three flat base on bases. These started after an uptrend of 30% off the absolute lows after 2008’s financial crash.
The first base consolidation range was 14%, the second was 11% and the third was 16%. These are within normal range for a base consolidation, normally these are within 15%. Range-bound price action shows the stock is holding up well after an uptrend, it’s not losing too much ground.
Lower volume in the base above shows indecision as the buyers and sellers apply pressure to see who wins. Low volume also often precedes sharp price movements, especially when price is near support or resistance. Traders might be waiting for a decisive move either up or down, or for an earnings report to come out before committing to trade. Then the high volume comes in.
In the picture above I have highlighted some candles that close very near their highs. Candles closing at their highs can be a significant sign of accumulation, especially during a consolidation period. You should look for consistent high closes over time to confirm an accumulation phase.
A candle or bar closing near it’s highs indicates buying pressure was strong throughout the trading period. This is true for one day candle or one week. Closing high suggests buyers were willing to pay higher and higher prices for the stock.
Equally, candles closing at the bottom of their range are a sign of distribution, so count both the high closing and low closing candles, then compare. In this picture, there are 11 high closing bars by my count and 11 low closing bars, so it seems pretty balanced to me.
For more confirmation one way or the other, check the volume during the high closing bars compared with the low closing bars. High volume candles closing at highs shows conviction and suggests strong buying pressure and potential for continued upward movement.
The two higher lows show weakening selling pressure as the sellers lose strength, unable to pull the price to lower levels. Each higher low suggests that buyers are stepping in at progressively higher prices. Keeping an eye on these higher lows could give you added conviction in the trade.
The higher lows could be setting up for a potential bullish breakout from the consolidation pattern, especially if accompanied by increasing volume towards the end of the consolidation period. In this case, that’s what happened. It wasn’t too explosive, but it worked.
The pattern of higher lows alone doesn’t guarantee a bullish trend continues. Combine this with other technical indicators and the general market. It may be that the general market is holding this stock back from breaking out. Relative strength is key to conviction and confidence.
Now that I have rattled on a bit about these, here are some quick fire examples of flat bases without too much description added.
I’m not sure if sellers and buyers were waiting for an earnings release before making their decision, but the bar breaking out of consolidation above is intense. It would take some large amount of selling to break that back down like it previously did in the base.
There’s almost always more than one place to take trades during an uptrend. After the breakout, price action pulls into the moving averages numerous times. You could enter as strength comes in and price resumes it’s uptrend.
Price action under cut the flat base by a little, it was supported there and closed at the bottom of the flat base for that week. This led to three weeks tight at the lows where sellers couldn’t pull the stock price down. Buyers made that their line in the sand.
On the fourth week, buyers stepped in and started the climb higher.
There isn’t a huge amount of volume at the breakout above on the daily chart. It might be above average but not huge. Not all breakouts have massive volume, and they still work.
You just have to know where your risk is going to be to play these as they are more likely to fail or fizzle out compared with an explosive breakout with volume confirmation.
Bearish candles aren’t the end of the world if there is supportive action straight after with enough strength to push it up off the bottom. You don’t need to make rash sell decisions as long as your stop-loss isn’t being violated.
A good tip would be to check different timeframes to see how the moving averages are interacting with price action. There are traders supporting and selling the stock on all timeframes and it’s key to be aware of them and how they may support a stock’s price action.
Note the higher lows, this is a great sign. What is interesting about this base is the two days, spaced not too far apart where sellers applied pressure and pulled the stock down, but buyers were there to step in and buy all of the supply that entered the market. The bars/candles closed near highs on the first day and about 60% of it’s highs on the second large down day attempt.
