[isatrader]

I am looking at a stock at the moment and wondered if i could have some help. To me (inexperienced) it looks like the stock has reached a very good stage 2 peaked and broke down since it dropped below the 30 WMA. However now it looks like it's recovering it just below its 30 WMA but very close to touching it again and there has been larger volume than usual on the stock recently. Is this one for my watchlist to see if it can exceed the WMA when the market opens on Monday? 
Edit: I'm trying to add the image of the stock but it's not allowing me, the stock in question National Grid LON:NG

Hi Joe725,

The place to start with Stage Analysis is the broad market. What Stage is it in? If it's in Stage 4, then you'll want to do very little if any buying, even if you see some stocks breaking out. As you probabilities of success are quite low when the market trend is against you. Review page 75 in the book for the "Forest to the Tree approach". This is key, as you should always be in tune with the broad market trend, as on average around 75% of most stocks movements are correlated to the broad market. So you want to have the wind at your back when you trade, and not be fighting it.

This may be frustrating at times when you see stocks having big moves and you're not participating. But over the long run it will save you from a lot of pain. As you should always consider the risk first. And being on the right side of the market trend is the first step in that.

I've marked up the chart of National Grid for you. It's Stage 2 failed with the broad market collapse, causing it to bypass Stage 3 and move directly to Stage 4. If the stock was showing exceptional strength during the market collapse then you might consider it, but as you can see from the relative strength at the bottom of the chart, it's actually hugely underperformed while the market has rallied over the last four weeks. So it's done the opposite of what you want to see, which is outperformance.

It may do well and recover, but as far as the method is concerned it's not something to be looking at at the moment - see Stan's Don't commandments on page 129