As of 09/28/2022
  Indus: 29,684 +548.75 +1.9%  
  Trans: 12,457 +303.78 +2.5%  
  Utils: 945 +10.61 +1.1%  
  Nasdaq: 11,052 +222.14 +2.1%  
  S&P 500: 3,719 +71.75 +2.0%  
YTD
-18.3%  
-24.4%  
-3.7%  
-29.4%  
-22.0%  
  Targets    Overview: 09/15/2022  
  Up arrow32,000 or 29,200 by 10/15/2022
  Up arrow13,800 or 11,800 by 10/15/2022
  Up arrow990 or 900 by 10/15/2022
  Up arrow11,975 or 10,700 by 10/15/2022
  Up arrow3,800 or 3,500 by 10/15/2022
CPI (updated daily): Arrows on 9/28/22
As of 09/28/2022
  Indus: 29,684 +548.75 +1.9%  
  Trans: 12,457 +303.78 +2.5%  
  Utils: 945 +10.61 +1.1%  
  Nasdaq: 11,052 +222.14 +2.1%  
  S&P 500: 3,719 +71.75 +2.0%  
YTD
-18.3%  
-24.4%  
-3.7%  
-29.4%  
-22.0%  
  Targets    Overview: 09/15/2022  
  Up arrow32,000 or 29,200 by 10/15/2022
  Up arrow13,800 or 11,800 by 10/15/2022
  Up arrow990 or 900 by 10/15/2022
  Up arrow11,975 or 10,700 by 10/15/2022
  Up arrow3,800 or 3,500 by 10/15/2022
CPI (updated daily): Arrows on 9/28/22

Bulkowski on Buying Low or High

Should you buy near the yearly low or use upward momentum to buy near the yearly high, surfing to a higher high? Research indicates that buying near the yearly low gives you better gains with lower risk.

 

Buy Low or High: Average Rise or Decline

I looked at 12,385 chart patterns using 25 different chart pattern types in 500 stocks from 1991 to 1996 and another 739 stocks from 1995 to 2005, encompassing both a bull and bear market. I wanted to know if it is better to buy within a third of the yearly low or buy within a third of the yearly high. Table 1 shows the results.

Market condition,
breakout direction
 Lowest 10%  Lowest Third  Middle Third  Highest Third  Highest 10% 
 Bull market up breakout  42% (179) 38% (1421) 35% (1874) 36% (2715) 36% (1294)
 Bull market down breakout  21% (236) 19% (705) 17% (852) 16% (871) 15% (75)
 Bear market up breakout  36% (118) 32% (607) 27% (764) 23% (924) 23% (413)
 Bear market down breakout  30% (185) 26% (461) 23% (443) 22% (263) 16% (15)
Table 1: Market condition and breakout direction versus the average rise or decline after the breakout from a chart pattern as a function of the yearly trading range.

Let's take the lowest 10% column where it shows 42% (179). That means the average rise in a bull market from an upward breakout was 42% and 179 samples qualified. To qualify, the breakout must have been within 10% of the yearly trading range from the yearly low. The next column uses a third from the low, and so on until the last column. The last column is a mirror of the lowest 10% except it applies to the yearly high. Patterns that qualify are within 10% or less of the yearly price range below the yearly high.

Regardless of the breakout direction and market condition the average rise and the average decline are higher as the buy point approaches the yearly low.

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Buy Low or High: Failure Rate

What about risk? Does the risk of failure increase when you buy low? The next table shows the answer.

 Failure Rate in a bull 
 market, upward breakout 
 Lowest 10%  Lowest Third  Middle Third  Highest Third  Highest 10% 
 5% 3% (5) 4% (62) 5% (97) 6% (168) 6% (72)
 10% 8% (15) 12% (172) 16% (307) 16% (440) 17% (217)
 15% 17% (31) 23% (320) 28% (522) 26% (711) 27% (347)
 20% 23% (41) 32% (450) 38% (711) 34% (935) 36% (469)
 25% 32% (57) 41% (589) 46% (866) 43% (1155) 45% (583)
Table 2: Failure rate for bull market, upward breakouts.

Table 2 shows how often price fails to rise at least 5%, 10%, 15%, and so on in a bull market after an upward breakout from a chart pattern. Bull market/upward breakouts showed the highest sample counts (in parentheses) so that's why they were chosen. The sample counts are slim for the lowest 10%, but the trend is clear, especially when comparing the lowest third column with the columns to the right.

Failure rates decrease the closer to the yearly low the breakout occurs. In short, it means buy a chart pattern breakout near the yearly low, not the high, and stay out of the middle.

-- Thomas Bulkowski

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See Also

 

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My novels:  Bedroom to Boardroom book Remember Me book Bumper's Story book Head's Law book
My stock market books:  Chart Patterns: After the Buy Getting Started in Chart Patterns 2nd edition book Trading Basics book Fundamental Analysis and Position Trading book Swing and Day Trading book Encyclopedia of chart patterns book Encyclopedia of Chart Patterns 3rd Edition book Trading classic chart patterns book

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According to my calculations the problem doesn't exist.Smiley