What is a Flat Base Pattern?

A flat base pattern is very much how it sounds. It’s not the most exciting pattern, but can be a low-key entry point before upward price momentum. The flat base is essentially when the stock moves mostly horizontally for a period of time, before picking up volume and passing its previous high.

Key Takeaways

-Look for this formation when the stock takes a rest after a significant breakout and climb
-The price should not decline more than 15% lower than its previous high
-Only takes 5 to 6 weeks for formation at minimum

Formation

The flat base chart pattern usually starts after shares have broken out of a cup and handle or double bottom pattern and climbed higher. This is where most of the hype surrounding the stock dies down a little, and the stock takes a rest for awhile before gaining steam again to make further gains. During this resting period, the stock should not decline more than 15% from its previous high.

Buy Point

The buy point ranges from 10 cents above the highest point formed during the base, up to 5% above that point. so if the highest point of the base is $100 per share… then the buy point is anywhere between $100.10 to $105.  The $100 mark is usually the point of resistance for the stock. If the breakout moves with volume greater than average, there is a good chance it will keep climbing. The high volume moves indicate that big institutional investors are moving into the stock, which usually means more increases to come.

Time Frame

Flat base patterns can form shorter than most of the other patterns, as short a 5 or 6 weeks. The time frame can extend much longer than this, as seen in the graph above of Netflix – NFLX in late 2018 to early 2019, where it lasted 12 weeks before breaking out. The tighter the base the better, but you do see this base moving between $190 to $200 (5% fluctuation) before breaking out to $274 before finding it’s next resistance point.

Warning Notes

-If the price declines more than 15% during this pattern, it is likely to fail
-The higher the volume during the breakout, the better. Be cautious of low volume breakouts

Additional Resources

IBD is here to save the day for those of you who want to skip straight to a video explanation:
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