The Big Base Breakout Set-Up

This positional set up leads to the biggest moves in the quickest time possible

May 25, 2024

I predominantly trade only 2 setups (well some version of the setup).

Flag Breakout, &
Big Base Breakout

In this article, I will discuss about the latter:

Key characteristics of a Big Base?
How to trade a Big Base breakout?
Why is it the best setup for a positional trade?
How to find big base Breakouts?
Examples of recent Big Base Breakouts and candidates.

The number 1 reading for this topic is William O’Neil’s (abbreviated as WON for the remainder of the article) “How to Make Money in Stocks”

Key characteristics of a Big Base:

We need to define the “Big” in the “Big Base”.

Anything bigger/longer than 50 days/candles is a good big base.

The bigger the better.

There are 2 locations where we will find a Big Base.

Stage 1 Big Base:
These are found at the end of a downtrend and are bullish reversal bases. They will be aplenty at the beginning of a Bull market.
These are the ones Stan Weinstein would trade.
Stage 2 continuation Big base:
These are secondary big bases within the stage 2 uptrend.
These are the ones William O’Neil would trade.
As they are bullish continuation bases, they will have a prior uptrend.
As the stock moves higher on its stage 2 journey, it can make several big bases.
A stock usually tops after base 3-4. Although very strong stocks many form 5-6 bases before they top (eg. Tata Elexsi post-COVID bull run. How many big bases can you count?)
Here is a quick fun experiment:
Can you count the base number on a) IRFC and b) Nvidia?

Quick pointers while trading Stage 2 Continuation bases:

Avoid bases that are more than 50% deep.
Avoid late-stage bases (>4).
Make sure there are all signs of an accumulation heavy base: VCP
As mentioned, please read WON’s book for a deeper understanding of good bases.

How to trade a Big Base breakout?

Entry:

A big base will come in various shapes and patterns, viz.

Cup and Handle (CnH)

CnH with a double-bottom

CnH with an inverse Head & Shoulder

Ascending Triangles, etc.

None of this matters while trading a Big Base Breakout though.

All that matters is if you can find a valid breakout pivot.

Depending on the shape of the base and the stage at which the base is, you are likely to find 3 possible buy points:

The One Horizontal line Breakout point/ The O’Neil Pivot Breakout:
This is the simplest of them all.
This is also WON’s preferred and only entry type.
Find a horizontal line around (mostly on or below the O’Neil pivot) the Base high that touches at least 3 pivot highs of the base.
This is a significant resistance.
The entry is when the price crosses above this pivotal line/resistance.
As a positional entry, it might be wiser to let the candle close above the line for a breakout confirmation.
Cheat/Low-Cheat Breakout Entry:
As the name suggests (Minervini lingo), you are cheating and entering before the real base breakout.
More often than not, a tighter price action at the right side of the base can be found at the late stage of base construction.
A breakout of this tight area is a valid buy point.
If this buy point is in the middle third of the base, it is called a Cheat pivot.
It is called a low-cheat pivot if it is in the lower third of the base.

Voltamps:

An example of a Big Base which had all 3 kinds of breakout entry.

Base length = 74 bars

Base Depth = 29%

Currently 100% up from the ONP breakout.

(Notice the 2 white candles on cheat and low cheat breakouts were signaled by my proprietary HKH indicator)

SCI: A more recent example of a Cheat BO

Why is it the best setup for a positional trade?

Simple.

The bigger the base, the bigger the move.

A bigger base means a longer consolidation period.

This means ample opportunity to digest the gains of the prior up move and more accumulation by strong hands.

Ways to find big base Breakouts:

There are many ways to hunt for a Big Base Breakout:

Manual scanning of 2000 stocks in 2 hours.
Using a scanner/Dashboard

1 will take more time but make sure you will not miss any.

2 will save time while catching 99% of good Big Base Breakout candidates.

I will write a separate article on how to use scanning tools to find these. But for now, please watch this quick video of my weekly scanning routine to find Big Base Breakouts.

Examples:

Please find the link to the Google document.

It contains a mix of some recent Big Base Breakouts and some candidates

That’s all for today mate.

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