The base: where the setup forms
A base is a lateral consolidation period after an advance. Price stops rising, enters a range, and moves sideways for weeks or months.
What happens during a base is not neutrality — it's accumulation. Large operators are buying gradually without pushing price upward. The visible result: price oscillates in an increasingly narrow range, and volume declines during the consolidation.
Signs of a good base:
- Price contraction: candles shrink, the daily range tightens
- Dry volume: average volume during the base is lower than before the advance
- Price above EMA200: the underlying bullish structure remains intact
- Duration: 3 to 15 weeks is normal; very short bases (under 3 weeks) are less reliable
A weak base has high volume during consolidation (institutions are exiting, not accumulating) or price falls below EMA50 (the correction is too deep).
The breakout: the moment of the signal
A breakout occurs when price exceeds the base's high — called the pivot high — on significantly above-average volume.
The pivot high is the resistance level that price couldn't surpass during consolidation. When it breaks through, sellers who were waiting at that level no longer have enough counterparty. Price accelerates.
What makes a breakout valid:
- Volume ≥ 1.4x the 20-day average: without that volume, the breakout may be false — price broke through by inertia, not active institutional buying
- Strong close: price closes in the upper third of the day's range. A weak close near the low signals distribution
- Price near the pivot: the best entry is when price just broke the pivot, not after it's up 10%. The closer to the pivot, the better the R:R
What invalidates a breakout: price returns below the pivot in following days (failure), low volume on the breakout day, or general market in distribution.
The pullback: the second opportunity
You can't always enter at the breakout — price may have moved before the signal appeared. The pullback is the second opportunity to enter the same setup.
After a breakout, price advances for days or weeks, then retraces. If the base and breakout were valid, that retracement should stop near EMA21 or EMA50 — price "returns to support" before continuing the advance.
A valid pullback:
- Price touches EMA21 or EMA50: the retracement reaches the average without breaking through it forcefully
- Dry volume during the decline: less volume than the preceding advance — institutions aren't selling
- Cooled but unbroken RSI: RSI between 38 and 68 at the touch
- Confirmed bounce: price closes above the EMA on the touch day or the next
The natural stop on a pullback is 1–2% below the EMA that acted as support. A failing pullback breaks EMA50 on high volume — that indicates institutional exit, not retail profit-taking.
How to connect this to the scanner
Gems and Opportunities show Stage 2 stocks with intact EMA Stack. Many are in the post-breakout phase or near one. When you open the chart, look for: is there a prior base? Did price break the pivot on volume? Is price still near the pivot or has it already run too far?
Pullbacks directly shows stocks that touched EMA21 or EMA50 in the last 10 days. Confirmation is simpler: verify the touch was clean (dry volume, close above the EMA) and that the bounce has already begun.
ENTRY vs SETUP status: ENTRY means the market is healthy and the setup is actionable now. SETUP means the technical setup exists but market context suggests waiting for confirmation before entering.