Stage Analysis

Ted highlights two more foundational books. Jesse Livermore's How to Trade in Stocks, which he is rereading for the third time, reveals that every modern trading principle — market leaders, sister stocks, sector themes, record-keeping — was discovered a century ago. Livermore's observation that 'the market repeats because human nature never changes' is a cornerstone of Ted's conviction in pattern-based trading. Stan Weinstein's Secrets for Profiting in Bull and Bear Markets provides the stage analysis framework: every stock is in one of four stages (basing, advancing, topping, declining), and the first thing Ted does when looking at any chart is identify which stage it's in. Stage analysis is a foundational part of his process.

Ted maintains a combined position list across all client and personal accounts, a pre-market scanner for early movers, and a universal scanner for post-close review. The critical discipline: he only builds from what's on the focus list during market hours — unknown movers aren't seen until after the close, which prevents impulsive chasing. He also tracks a short watchlist for stage 3–4 names breaking down, and the focus list itself is the anti-FOMO mechanism: if a stock isn't on the list, it literally doesn't exist during the trading day. The blinders are intentional — the market shows you thousands of movers, and trying to track them all is how you end up in low-conviction trades.

With the broader market in a neutral state, Weinstein identifies where genuine leadership is showing up: biotechnology has been almost universally strong, semiconductors and AI-related names have been outstanding, and the Russell 2000 has finally broken above its 200-day moving average after a prolonged period below it. The Russell breakout is particularly meaningful — when small-cap stocks join the large-cap leaders, the rally becomes broader and more credible as a sustained move rather than a narrow tech-driven spike. This broadening of stage 2 action across sectors is what Weinstein looks for to confirm a genuine change in market character.

Weinstein explains why stage analysis creates the most favorable risk/reward environment for active traders. When a stock has been thoroughly destroyed during a stage 4 decline and has since built a base, the emergence into stage 2 with moving averages beginning to turn up creates an entry where the natural stop is close and the potential upside is large. Buying into stage 3 or stage 4 reverses this equation entirely: the easy move has already been made and downside risk far outweighs remaining upside. The system's entire edge comes from entering early in the cycle, before the crowd has recognized the opportunity.

Drawing on four decades of navigating every major market cycle, Weinstein argues that trader failure almost never comes from a bad system — it comes from overriding a good system when it becomes uncomfortable. His rules are deliberately simple: regardless of how good the fundamentals look, if a stock is in stage 3 or stage 4, stay away. If the moving averages are declining and price is below them, there is nothing to debate. He reflects on how his track record of catching every major bull and bear market since the 1970s came not from brilliant forecasting but from following a consistent, non-negotiable process through every uncomfortable moment.

In a live walkthrough of his Global Trend Alert newsletter recommendations, Weinstein reviews both successful positions and trades that did not work — narrating exactly what he sees and why each chart passes or fails his standards. He explains how the 50-day and 200-day moving averages define the structural backbone of any stage 2 setup, how the slope of those averages indicates stage health, and what distinguishes a genuinely high-quality base from a merely acceptable one. A chart that otherwise looks like a stage 2 setup but has nearby overhead supply — prior resistance from previous highs — gets downgraded: buyers will need to work through that supply before the move can fully materialize.

"It's not an A-plus chart because you do have supply."

Weinstein explains a fundamental change he has made to his exit rules to account for the dramatically higher volatility of modern markets. In earlier decades, his primary exit trigger was a close below the 150-day or 200-day moving average. Today, with stocks capable of dropping 20–30% in days rather than weeks, waiting for those slower signals means absorbing losses that are difficult to recover from. His updated rule: when a stock closes below the 50-day moving average, he exits immediately, without debate. He frames this not as pessimism but as adaptation — the mechanics of stage analysis remain intact, but the specific thresholds have been recalibrated to match the reality of how fast modern markets can move.

"I'm totally disciplined. I never argue with my system."

Weinstein walks through a series of charts to explain how gaps function as signals of institutional conviction. When a stock gaps up as it transitions from stage 1 to stage 2, confirmed by a move above its long-term moving averages, that breakaway gap is one of the strongest buy signals available. Even more powerful: when a subsequent pullback fails to fill that gap, it demonstrates that real demand stepped in and held price above that level. He notes that while roughly 90% of gaps eventually get filled, the 10–15% that do not — including a gap from 1962 on the Dow Jones that has never been filled — carry exceptional predictive power. News-driven gaps that fill quickly signal the opposite: the move lacked institutional backing.

"The 10 or 15% that don't get covered — that's a very powerful signal."

Weinstein continues the gap analysis, showing how the same gap pattern that signals a strong stage 2 entry becomes a warning when it appears in an extended stock. Using the Nvidia chart, he identifies how a third or fourth gap — appearing late in a significant move, far above the moving averages — shifts the probability from continuation to exhaustion. When that late gap is followed by a terrible close on heavy volume, the warning is clear. He explains that he trimmed Nvidia positions for clients on exactly this analysis, separating the short-term tactical view from the long-term thesis: Nvidia remains a strong company, but the technical evidence argued for reducing exposure after the exhaustion pattern appeared.

"That to me is an exhaustion gap. It's late in the move."

Asked how to pick the best stocks from the many transitioning out of stage 1, Weinstein explains his forest-to-trees approach. The first filter is the overall market environment. The second is group strength: a great chart in a weak sector is worth less than a good chart in a leading group, so identify the leaders first. Third, check for minimal nearby overhead supply — prior price highs create resistance that absorbs buying and stalls moves. Finally, require volume confirmation on the actual breakout: without institutional participation showing up as a notable volume spike, the breakout lacks the force to sustain. All four boxes need to be checked for a setup to earn A+ status.

"Plus it's got volume coming in which shows that people are excited to do buying."

Weinstein walks through a series of stocks on his sell list, demonstrating the recurring patterns that signal stage 3 and stage 4 breakdowns: double tops followed by 50-day MA breaks, systematic series of lower peaks indicating distribution, and head-and-shoulders patterns that breach both the 150-day and 200-day moving averages. Each break of the 50-day MA is a warning — individually survivable but collectively diagnostic. Using live chart examples from multiple names, he shows how the accumulation of these warning signals makes the eventual stage 4 breakdown predictable rather than surprising, even in what he considers a neutral market.

"Each one is a small warning — a warning heart attack."

Weinstein introduces his proprietary 4B- rating: a stage 4 stock that has been thoroughly destroyed, built at least a small base, reclaimed the 50-day MA, and has room to run with no nearby overhead supply. The minus suffix indicates the stock is no longer in free-fall but hasn't yet developed into a proper stage 1 base. For short sellers, the 4B- is the signal to cover; for aggressive early-entry traders, it marks the first point where a tentative long becomes defensible. Weinstein emphasizes that buying at 4B- requires patience — the stock may need months to fully transition into a stage 2 breakout, but the risk/reward at this late-stage-4 inflection is structurally favorable for those willing to wait.

"It's no longer a grade of whatever that stage is."

Don, River's co-founder, built the firm after watching his father-in-law suffer a 50% drawdown at Morgan Stanley while battling cancer during the 2000 dot-com crash. That experience drove the firm's core value proposition: match S&P returns with dramatically lower drawdowns by using active trend-following to move toward cash when markets deteriorate. MSTR and Bitcoin in late 2024 illustrate stage 4 downtrends in real time — both are below a declining 40-week and 200-day moving average with no basing structure. Ted will look for stabilization and EMA recapture before considering re-entry; he is not a mean-reversion trader and will not buy the dip into a declining trend.

"Nothing good happens under the 40-week, especially a declining 40-week and declining 200-day moving average."

Ted and Connor first met at a boarding school soccer program at age 13, reconnected through social media during COVID, and eventually both independently applied to River by cold-DMing the founders — without disclosing they knew each other. They only revealed their connection after both had full-time offers. A mutual friend who had traded with them and then blown up his account became their part-time data scientist — Ted notes that blowing up, while painful, gave him a unique perspective on what not to do. Ted shares earlier networking: he spent a summer as an unpaid intern at TraderLion, which he also initiated with a cold DM to Richard Muglin, helping build a Stan Weinstein stage analysis course. Every career door opened through direct outreach.

"I DM'd Richard Muglin — can I just do an unpaid internship with you guys? I want to learn."

Ted shares the story of his summer internship at TraderLion, which he got by cold-DMing co-founder Richard Muglin. During a three-month gap between dental school applications and responses, he had time and used it to immerse himself: helped build the Stan Weinstein stage analysis course, read 10-15 books, and learned directly from experienced traders. He notes that the founders of TraderLion — Richard Muglin and Ross Haber — were ex-portfolio managers who had managed capital for William O'Neil's firm, giving them direct lineage to the CANSLIM tradition. Ted credits this internship as a pivotal learning accelerator: being embedded in a professional environment, even unpaid, forced faster development than years of solo study.

"Find people who are where you want to be and learn directly from them — that compresses years of trial and error into months."

Ted explains his application of Weinstein's stage analysis framework using the weekly chart and four simple moving averages (10, 20, 30, 40-week SMAs). Stage 1: price choppy around the MAs after a downtrend, lines flat or slowly turning — the base-building phase where institutions accumulate quietly. Stage 2: 10-week stacked above 20, above 30, above 40 — all rising with slopes aligned, price above the 10-week — this is the uptrend, and the only stage where you want to be long. Stage 3: lines start flattening, price oscillating across them — distribution, where institutions are selling into strength. Stage 4: price below a declining stack — the downtrend where you short or stay completely out. The full cycle typically takes 2-4 years. Stages 1 and 3 are where traders lose money: Stage 1 can last years, chopping up anyone who tries to anticipate the breakout; Stage 3 looks tempting because the stock is still near highs, but institutional distribution means every rally is being sold. The operating rule: do not trade Stage 1, do not trade Stage 3. Long only in Stage 2, short or cash in Stage 4. Ted emphasizes that these stages apply to every liquid market, from stocks to crypto to indexes.

"Long in stage two, short in stage four. Looking at the alignment and slope of the 10, 20, 30, 40 will literally keep you out of trouble."