What's better — buy stocks at highs or lows? The overwhelming majority believe that it is necessary to buy at the lows because it is cheap and therefore will soon rise in price. On the other hand, trend traders believe that if stocks go up, it means not just like that, and therefore will continue to grow in the future.
Let's experiment with a portfolio of stocks from the SP500 index.. Let's highlight 5% to position. That is, it can simultaneously be open 20 positions. Let's buy stocks at the lows first. For example, when today's close is the lowest in the last year. But after all, the profit must be fixed sometime.. Let's set a take profit, for example 20%. But it won't always be achieved, so we also exit the position after a year, if the position is not closed by take profit.
Now let's do the same, only entry will be when today's close is the highest in the last year:
From the graphs and coefficients, we see that the profitability and all coefficients in the second case, when we buy at the highs, in 1,5-2 times better.
Now we will remove the take profit so that the profit can grow and leave only one exit — in a year. We buy at the lows — we sell in a year:
Now buying at the highs — we sell in a year:
We see that buying at the highs is simply incomparably better several times.
There is also one small nuance here. — we do not take into account retired, delisting shares. In the case when we buy at the lows, we run the risk of running into a bankrupt company. And when we buy at the highs, we do not take into account the retired companies, which were purchased (mergers / acquisitions) other companies overpriced with a big gap up. That is, the result, in theory, should make an even bigger difference. But even without this nuance, it is clear that you need to buy at the highs, not at the lows.
Someone will say that the opposite is true in the Russian market.. Let's check. We test companies from the topFinam for the last 10 years. There is no point in testing for an earlier period, because there was simply no opportunity to buy at the lows because there was a rapid growth.
We buy at the lows, we sell in a year:
We buy at the highs, we sell in a year:
