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Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

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Bulkowski's Best Buy Price

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Busted
Patterns
Candles Chart
Patterns
Event
Patterns
Small Patterns
Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 03/23/2017
20,657 -4.72 0.0%
8,936 -51.04 -0.6%
703 -1.87 -0.3%
5,818 -3.95 -0.1%
2,346 -2.49 -0.1%
YTD
4.5%
-1.2%
6.5%
8.1%
4.8%
Tom's Targets    Overview: 03/14/2017
21,250 or 20,600 by 04/15/2017
9,500 or 8,700 by 04/15/2017
675 or 715 by 04/01/2017
5,950 or 5,650 by 04/15/2017
2,425 or 2,325 by 04/15/2017
Mutt Losers: None YTD
Mutt Winners: None YTD

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information.

What is the best buy price for stocks? Let's find out.

 

Summary

Stocks priced $5 or less have the highest average rise with the lowest failure rate of any range studied.

Stocks $20 or below have above average gains and lower failure rates than the higher priced stocks.

Methodology

I used 1,269 stocks going back as far as May 1988 and lasting to June 2015 but few stocks covered the entire range. I included bull and bear markets because taken individually didn't change the results and I wanted to keep the sample counts high.

Excluded were dividends, commissions, fees, and if the ultimate high was not found by the end of data, I just used the highest high. The ultimate high is the highest high before a 20% drop or before the stock closes below the bottom of the chart pattern (where it's assumed that a stop loss order would end the trade).

I used 22,940 chart patterns of 38 varieties in the analysis.

I measured the rise from the closing price the day before the breakout of a chart pattern to the ultimate high. Then I did a frequency distribution of the closing price the day before the breakout but mapped the associated rise to the ultimate high.

That's like digging into your pocket and pulling out your change. I counted the number of pennies, nickels, and dimes but instead of using the totals for each, I used their value.

This becomes clear when you look at the bar chart in the next section.

Survivorship bias: I included chart patterns from stocks that no longer trade for whatever reason (went bankrupt, merged out of existence, and so on).

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Results

Picture of a bar chart of the results.

The above chart shows a frequency distribution of gains sorted by the closing price the day before the breakout from almost 23,000 chart patterns.

The average rise of those chart patterns is 42%. I show that with a red line.

Notice that stocks priced up to $20 are above the red line (gains above average). After that, performance suffers.

The chart says that to boost your profit potential, select stocks $20 or below. Generally, the lower the price, the better the performance.

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Picture of a bar chart of failure rates.

This chart is the same as the previous one except that I added 5% and 10% failure rates.

The green vertical bars are the performance, taken from the prior chart as a reference.

The deep red bars represent trades that fail to see price rise at least 10% after the breakout. The lighter red bars are the 5% failure rate (a count of trades that fail to see price rise at least 5% after the breakout).

As the chart shows, the higher the breakout price, the larger the failure rate, up to about $65. After $65, the failure rates bobble up and down.

Again, for the best performance, buy lower priced stocks.

-- Thomas Bulkowski

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See Also

  • The best performing chart patterns over 1, 2, and 3 months.
  • Failures. Which months show the most failures?
  • Best buy days. Which day of the week is the best one to buy or sell?
  • Best buy months. Can buying at the end of the worst performing month and selling at the best performing be profitable?
  • Seasonality. What are the best months to buy and sell stocks?
  • Buy low or buy high? Buy near yearly low for larger gains, less risk.
  • Holidays. Does the market rise or fall before and after holidays? Answer: Fall.
  • Market cap. Chart patterns in small cap stocks outperform.

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. Frisbeetarianism, n. The belief that when you die, your soul goes up on the roof and gets stuck.