Why Late-Stage Breakouts Are More Dangerous Than They Look
- Rohit Musale, CFA
- Jan 1
- 3 min read
The riskiest trades often look the most attractive on charts.
This is the weekly chart of Cummins India.
As you can see, the stock has come out of a cup with handle pattern.
This is base number four in a confirmed Stage 2 uptrend, and base four is generally considered a late-stage base.
I have circled three important price areas on the chart.
The blue shaded area represents the buying range.
The red shaded area represents the stop-loss range.
The green shaded area represents the selling range.
As of now, the price has broken out of the cup with handle pattern but has not yet completed its journey to the green selling range.
The stock is already extended from the weekly pivot point, so it does not make sense to get involved at this stage.
That is my first argument.
Second, even when the price enters the green zone, it does not mean that I will enter the stock.
All it means is that the stock has completed its journey toward its target.
From there, it is more likely to form another base.
A trader should wait for at least three weeks of consolidation on the weekly chart or at least ten candles on the daily timeframe before even considering involvement.
Even at that stage, the stock will still be risky.
If a stock comes out of base number four, the next base will be base number five.
Base four itself is already very late-stage.
Mark Minervini considers base number three as a tradable base.
A tradable base is where you enter and exit after a 20–25 percent move.
Base three is not an investable base.
Base one and base two are investable bases.
Cummins is currently coming out of base four and may attempt to form another base once it reaches the selling range.
So, I see risk written all over this stock.
I am not saying, the stock will not go up.
All I am saying is that, it is a risky proposition given the full context of the chart.
Even if it forms the next base, I personally would not risk my capital here.
Some aggressive traders might attempt to trade it, but that comes with very high risk.
Trading a stock without awareness of risk, stage, and base count is a recipe for disaster.
Look at the broader context.
The stock has moved from roughly ₹1,000 to ₹4,400 in about four to five years.
That is more than a four-times move.
It is already extremely extended from its 2020–2021 price levels.
This chart is a perfect example of why base one and base two are called investable bases, and base three is called a tradable base.
The stock went through immense pain between June 2024 and June 2025 because it got excessively extended after base number three.
From base three to base four, the move was more than 100 percent.
Whenever a stock extends far beyond its normal 20–25 percent target, a sharp correction usually follows.
The more extended the move, the more pain that follows during the next base.
This is a very important lesson.
Do not ignore base count in your technical analysis.
If the hair on your skin stands up when you see a potential breakout, and you feel excited, just check the base count before you pull the trigger.
Regards,
Rohit Musale, CFA
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