Bulkowski’s Market Cap and Performance

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Background

Market capitalization is the number of shares outstanding multiplied by the stock price (or in this case, the chart pattern breakout price). I classify capitalization into three categories: small cap stocks (up to $1 billion), mid caps ($1 billion to $5 billion), and large caps (over $5 billion).

Details

I measured the rise from the breakout price to the ultimate high (the highest high before price tumbled by at least 20%), or the decline to the ultimate low (the lowest low before price climbed by at least 20%). Then I sorted the stocks by market capitalization. I found that chart patterns in small cap stocks performed best, followed by mid caps, and then large caps.

For example, price after a head-and-shoulders bottom climbed an average of 42% in 154 samples taken from small cap stocks. Mid cap stocks (147 samples) climbed 33%, on average, after the breakout and large caps climbed 27% (64 samples) post breakout. Thus, small caps outperformed followed by mid and large cap stocks, respectively.

For more information (time period covered, sample size and so on), refer to my book, Trading Classic Chart Patterns. It shows the percentage rise or decline for each pattern, sorted by capitalization.

Results

Nineteen patterns perform best in small cap stocks.

• Adam & Adam double tops
• Adam & Eve double tops
• Ascending scallops (upward breakout)
• Ascending triangles (upward breakout)
• Broadening tops (downward breakout)
• Broadening tops (upward breakout, tied with large cap stocks)
• Descending scallops (upward and downward breakouts)
• Descending triangles (upward breakout)
• Diamond tops (downward breakout)
• Eve & Adam double bottoms and tops
• Eve & Eve double bottoms
• Head-and-shoulder bottoms
• Head-and-shoulders tops
• Rectangles (upward breakout)
• Symmetrical triangles (upward breakout)
• Triple bottoms (tied with large cap stocks)
• Triple tops

Six patterns perform best in mid cap stocks

• Adam & Adam double bottoms
• Adam & Eve double bottoms
• Ascending scallops (downward breakout)
• Ascending triangles (downward breakout)
• Descending triangles (downward breakout)
• Eve & Eve double tops

Three patterns perform best in large cap stocks

• Broadening tops (upward breakout, tied with large cap stocks)
• Symmetrical triangles (downward breakout)
• Triple bottoms (tied with large cap stocks)