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I was using an example of your flawed math. You are wrong about the probabilities of price recovering from $5 to $10. I don't know why you are even talking about fundamentals as that has nothing to do with the discussion. You need to read the first post and understand what the discussion is...

Wrong and wrong. You are suffering from both traders fallacy, AND believing that stocks move based on fundamentals. Theoretically then, according to you, it is statistically more probable that a stock price will not reach its previous highs after dropping. If we continue this logic then the...

You think stocks move based on fundamentals?

That would be an external factor. There are a lot of things that can affect price action as mentioned. We are just talking about the claim that if a stock drops from $10 to $5 then it has only dropped 50%, therefore it will be harder to recover your losses because the stock needs to increase by...

What you are describing is what external factors would affect the price action of each stock, and what is the probability of those external factors resulting in the price recovering. Well that would depend entirely on the external factors.

Just started trading? lol who has a Lambo? We aren't talking about a portfolio being down 50% and how much percent is needed to recover...we are talking about the price of a stock being down 50% and the probabilities of it returning a previous level. Again. If a stock drops from $10 to $5 there...

Yes but the portfolio goes up and down based on the stock price. The stock price does not go up and down based on the portfolio. If a stock drops from $10 to $5. Is there less of a probability of it returning to $10 than there was for it to drop to $5?

The traders fallacy isn't about recovering from a portfolio loss. It is about wrongly applying probabilities to a stocks price movement based on how much the stock price has declined. The two things are completely irrelevant.

Thank you! tomkat22 gets it!

First of all your chart is wrong. Secondly, it has nothing to do with the traders fallacy. YOUR own profits and losses are irrelevant. The traders fallacy incorrectly assumes that because going from $10 to $5 is a 50% loss, and going from $5 to $10 is a 100% gain, means that there is less...

"A stock that declines 50% must increase 100% to return to its original amount. Think about it in dollar terms: a stock that drops 50% from $10 to $5 ($5 / $10 = 50%) must rise by $5, or 100% ($5 ÷ $5 = 100%), just to return to the original $10 purchase price. Many investors forget about simple...

Is the article claiming that there is less of a probability for the stock price to return to its previous level of $10 because that would require a 100% gain versus only the 50% drop it took to $5? Then yes it is an example of the traders fallacy. How about you explain to me why you think it...

Yes if there was a catalyst such as a bad earnings report etc then the price will likely not return to the previous level...but THAT is due to the bad earnings report, not due to the false mathematical burden you are placing on it. You guys are all suffering from the traders fallacy...its...

NO IT ISN'T! This is so frustrating. Your portfolio will go up and down relative to the stock price. The stock price doesn't care about YOUR profit and losses. Price action is not determined by YOUR profit and losses. This is the FALLACY! You are measuring your portfolio P/L and wrongly applying...

OMG you can't seriously not see the flaw in your logic?? You are giving a perfect example of the traders fallacy. Which has a greater probability of happening? You aren't measuring probabilities with your simple math. That is the FALLACY! Probability of a price returning to ANY previous level is...

You guys are really struggling with this concept. You are confusing P/L math with price action. If a stock drops from $10 to $5 then it needs to rise by $5 to return to even. Calculating the percent drop and percent recovery is irrelevant. It has no bearing on the probability of the stock...

No. They are implying that it will be harder for the stock to recover because it has to recover 100% which is the fallacy. Read it again. ""A stock that declines 50% must increase 100% to return to its original amount. Think about it in dollar terms: a stock that drops 50% from $10 to $5 ($5 /...

Sentiment encompasses all external factors. Mathematically it would be in a perpetual downtrend. :)

Agreed. Down 50 ticks. Up 50 ticks. No difference.

It's called the traders fallacy not mathematical fallacy. When I use the term mathematical fallacy I am using it as reference to the traders fallacy meaning belief in the math as it is being presented is a fallacy. This isn't a math problem. We can all agree that a 50% drop from $100 is $50 and...