Most investing conversations are about what to buy: the best ETFs, the best dividend strategy, the next AI play. But knowing what to buy is only half the equation. The other half is knowing when. That's where most investors trip up: they buy too early while something is still falling, or too late after the move has happened.
Timing isn't about being perfect. It's about being patient enough to wait for evidence. This is the framework I use every week: the base and trend method.
Everything moves in cycles: a downtrend, a sideways base, then a new uptrend. Rather than guessing the bottom, wait for an ETF to stop falling, build a base and break above a clear pivot level on stronger volume. Then set a stop below the pivot so losses stay small if you’re wrong.
The big idea: everything moves in base and trend
Croc shoes, comic books, tulips in the 1600s, property in your suburb, Bitcoin, gold. Zoom out on any chart and you'll see the same pattern: a period where nothing much happens (a base), followed by a period where everyone wants in (a trend). Then it tops out, corrects, builds a new base, and either does it again or fades away.
- A base is when price stops falling and moves sideways while the market decides what's next. It can last weeks or years.
- A trend begins when price starts rising with structure: higher lows, reclaiming key moving averages, breaking pivot points, with volume picking up.
The first sign something is changing
- In a downtrend, the first hint of a turn is a higher low: the next dip doesn't fall below the last one. Sellers are running out of energy.
- In an uptrend, the first hint of the end is a lower high: the next rally fails before reaching the last peak. Buyers are no longer willing to pay more.
Either way, the next phase is usually a base.
Moving averages: SMA and EMA
A moving average is the average closing price over the last X days, recalculated each day. It shows the "consensus" price, or what buyers have paid recently. Big institutions watch the same levels, which is why they often act as support or resistance.
A simple moving average (SMA) weights every day equally; an exponential one (EMA) weights recent days more, so it reacts faster. When the averages are stacked (20-day above 50-day above 200-day, all pointing up), the ETF is in an uptrend and every buyer in the past year is in profit. When they unstack, the trend is breaking.
Pivots: the line in the sand
A pivot is the price level where a breakout would trigger, usually the high of the most recent tight consolidation inside the base. Below it, the setup hasn't fired. Above it on stronger volume, buyers have taken control. The pivot gives you three things in one number: a trigger to enter, a level to set your stop, and a way to measure risk before you invest a dollar.
The three base setups
As a recovery matures, these often appear in sequence. Enter earlier and you capture more upside but take more risk; enter later and you get more confirmation but miss some of the move.
- A clear downtrend
- A first low, often on high volume
- Price starts to base
- A shakeout that briefly undercuts the first low
- Recovery and a higher low
- A “change of character”: a strong green bar
- A pivot forms, then price breaks above it
Example: HACK (cybersecurity) made its first low in February, a shakeout in mid-April, then a higher low and strong green bar on 22 April before breaking above its 20-day EMA and 50-day SMA.
- A strong prior uptrend, then a pullback
- A first low, then a second low or shakeout (the double bottom)
- The downtrend line breaks
- Price reclaims or holds the 50-day moving average
- A pivot forms near the 20-day moving average
Example: IKO (South Korea) formed a double bottom, broke its downtrend line and then broke above its pivot. It then rose more than 50% in about 60 days.
- A strong trend before the base
- A proper base forms
- Price holds above the key moving averages
- Each pullback gets smaller (a VCP: e.g. 21%, then 10%, then 6%)
- Volume dries up near the pivot
- Price breaks out on stronger volume
Example: XMET (critical minerals) spent a long time in a base, digesting supply. When it finally broke out, it rose over 120% in 211 days.
Examples show past price moves to illustrate the patterns. They are not recommendations, and past performance is not a reliable indicator of future performance. Many setups fail.
A simple step-by-step process
- Find an ETF worth watching: a strong theme, improving strength or an exposure you want. I use ReviewETF to scan 500+ ASX ETFs.
- Identify the stage: downtrend, base, trend or extended?
- Look for the right setup: bottoming base, DTP or breakout with pivot.
- Mark the pivot price needs to break.
- Check volume: drying up near the pivot, expanding on the breakout.
- Define your stop before you enter. Know where you're wrong.
- Check risk vs reward: if the stop is too far from the entry, skip it.
- Enter only if the setup triggers. A watchlist, a theme or a prediction isn't an entry.
- Accept that some trades will fail. It's a process, not magic.
False breakouts are part of the game
Sometimes price breaks above the pivot, looks strong, then falls back into the base. That's frustrating but normal. It's often "trapped sellers" who've waited months to break even taking the chance to exit. Usually the base just needs more time, so keep it on your watchlist. That's why the stop loss matters: not because you expect to be wrong, but because you can be. Keep losses small, so one good winner outweighs several small mistakes.
Where this fits in your portfolio
This isn't a full retirement strategy. A long-term portfolio still needs a diversified core of broad market ETFs, sensible asset allocation, a cash buffer and risk control. The base and trend method is best used for timing entries into the satellite part of your portfolio: thematic, regional, commodity and sector ETFs. Build a watchlist, wait, and let the ETFs prove themselves. The strongest ones move first.
Watch the full video on YouTube →
General information only. This describes an approach to analysing price charts. It isn’t a recommendation to buy or sell any ETF and doesn’t consider your objectives, financial situation or needs. Charting and stop losses don’t guarantee results or prevent losses.
Frequently asked questions
What is the base and trend method?
A way of timing ETF entries by waiting for an ETF to stop falling, build a sideways base, and break above a clear pivot level on stronger volume, rather than guessing the bottom or chasing a move that has already happened.
What is a pivot point in a chart?
The price level where a breakout would trigger, usually the high of the most recent tight consolidation inside a base. It gives you an entry trigger, a level for your stop loss and a way to measure risk.
What does it mean when moving averages are stacked?
When the 20-day moving average is above the 50-day, the 50-day is above the 200-day, and all are pointing up, the ETF is in an uptrend. When they cross back the other way, the trend may be breaking.