Flat Base

Quick definition

A flat base is a price consolidation formed by a financial asset after a prior uptrend.

Key details

• A flat base is defined by a shallower decline than that seen in other forms of bases. 
• Unlike cup-with-handles and other forms of bases, a flat base doesn’t require as big a prior uptrend to take shape. 
• The first prerequisite of a flat base is a prior uptrend of 20% or more, typically following a breakout from a prior base.

What Is a Flat Base?

A flat base is a price consolidation formed by a stock after a prior uptrend. It’s defined by a shallower decline than that seen in other forms of bases. Also, flat bases usually form after a stock has broken out from a previous consolidation. It’s thus often referred to as a “second-stage base.”

Why Is a Flat Base Important for Investors?

Every form of base gives winning stocks a chance to pause before embarking on another big surge in price. What makes the flat base different is that it takes place after a prior breakout. 

This gives you two potential paths to success. If you were lucky and shrewd enough to buy the stock as it broke out of its first-stage base and held on throughout the uptrend that followed a subsequent flat base allows you to add more shares to your winning position. If on the other hand you’re just now noticing this stock’s potential, the flat base gives you a chance to jump in for the first time, assuming a healthy breakout in big volume occurs at the end of that flat base.

What Are the Stages of a Flat Base?

Unlike with cup-with-handles and other forms of bases, a flat base doesn’t require as big a prior uptrend to take shape. 

After initially taking shape, you’ll see a milder price decline than you would in other bases. In some cases, it’s a gentle slope downward lasting a few weeks. In other cases, the price consolidation truly does look “flat,” with only a very small pullback. 

The final stage, as with any base, is the breakout. In this case, you’re looking for a big price surge in heavy volume as the stock surges out of its price consolidation. 

What Are the Prerequisites of a Flat Base?

The first prerequisite of a flat base is a prior uptrend of 20% or more, typically following a breakout from a prior base.

Befitting its name, flat bases mustn’t include price drops that are too large; the price should dip no more than 15% from the top of a flat base to its lowest point.

A flat base should take at least five weeks to form. The first down week after an uptrend counts as Week #1.

Your ideal buy point occurs on the day the stock surges above the top of that flat base. You want to buy in 10 cents above the top of the base, or as close to that 10-cent marker as you can get, if you’re a little later than that. 

Finally, volume should surge at least 40%-50% above its daily average. The bigger the volume surge, the more powerful the breakout and the more likely you are to make money when you buy at that breakout point.