Setups › Stage 2 breakout

Stage 2 breakout

From Stan Weinstein. In one line: closed above its 6-month high on 2x+ normal volume, above a rising 30-week avg.

About the names. The famous names are credit for publicly described ideas. Every test here uses our own simplified, fully coded version of the idea, so the numbers show how our code behaved on past prices, not how the named person trades or traded. No affiliation with, or endorsement by, any named person.

3,881

trades tested

38%

win rate

-0.13R

average result

-0.53%

vs Nifty per trade

What it looks like

Stan Weinstein split every stock's life into four stages: 1 basing (sideways after a fall), 2 advancing, 3 topping, 4 declining. His favourite buy is the moment a stock leaves stage 1 for stage 2: it breaks above its base on heavy volume while its 30-week moving average turns up.

Why traders use it

Most of a stock's big gain happens in stage 2. Buying right at the start, after a long base, means you are not paying for a move that has already happened, and the base gives a clear level that should not be lost again.

The exact rule we tested

The close is above the 150-day average (about 30 weeks), and that average is higher than a month ago.
The close is above the highest close of the last 6 months.
Volume today is at least 2 times the 50-day average.

Mistakes to avoid

Buying in stage 3 or 4. A stock below a falling 30-week average is not a stage-2 stock, however cheap it looks.
Weak volume on the breakout. Weinstein insists on a volume surge; without it, breakouts often fail.
Ignoring the market's own stage. He checks the index first: stage-2 stocks work best in a stage-2 market.

How we tested it

Every day from 05 Nov 2024 to 05 Nov 2026, every main-board NSE stock (price ≥ ₹50, turnover ≥ ₹5 crore a day) that showed this setup was bought the next day above its last high, with a stop 1.5 ATR below and a target 2.5 ATR above, and sold after 10 trading days if neither was hit; 0.1% costs per trade. Traders usually hold this setup 5-10 days.

The maths behind the result

Average winner +1.17R, average loser −0.94R, win rate 38%. Expectancy = 38% × 1.17 − 62% × 0.94 = -0.13R per trade. To break even with this payoff you need to win at least 45% of trades. How expectancy works.

A historical simulation, not live trading and not a recommendation.