OMG I can't believe this fallacy still exists in trading!

[wxytrader]

WXY the best I can figure is they think there is some mysterious,intrinsic force in the Universe that makes it harder for a company to lift it's stock price than lower it. LOL.

Thank you! tomkat22 gets it!

 

[destriero]

No it doesn't. It's the same thing...portfolio goes down...portfolio goes up. The market probably wants you to think this so you all let go of your stocks dirt cheap. I mean think about it...if this was how it worked then why are hedge funds (and some retail) always looking to load up at the bottom of a capitulation? According to this math that would be a bad time to buy because it would likely never return to pre-drop levels lol.

Here is an example..you can basically pick any stock to find an example because this is how all stocks move lol.

View attachment 325165

Your net liq drops 50% and you need a double to recover... but you're trading on half the cash. Assuming that you're applying the same methodology your size has to double to achieve the same notional win and you're now risking 2X. Is this thread meant as satire?

So you take a 50% haircut and risk the same units?

LTCM tried to raise capital when they were down 50%. How did that work out for them? (They went debit).

 

[wxytrader]

Your net liq drops 50% and you need a double to recover... but you're trading on half the cash. Assuming that you're applying the same methodology your size has to double to achieve the same notional win and you're now risking 2X. Is this thread meant as satire?

So you take a 50% haircut and risk the same units?

LTCM tried to raise capital when they were down 50%. How did that work out for them? (They went debit).

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.

 

[destriero]

We aren't talking about recovering from a portfolio loss. We are talking about wrongly applying probabilities to a stocks price movement based on how much a portfolio has lost. The two things are completely irrelevant. Apples and oranges.

No it doesn't. It's the same thing...portfolio goes down...portfolio goes up.

 

[wxytrader]

No it doesn't. It's the same thing...portfolio goes down...portfolio goes up.

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?

 

[taowave]

The real traders fallacy is referencing Investopedia...

You are the only one talking "price action" after a 50% drawdown....

What you are missing ,as you just started trading ,is when you are down 50%,you are most likely toes up

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 a portfolio has lost. The two things are completely irrelevant.

 

[wxytrader]

The real traders fallacy is referencing Investopedia...

You are the only one talking "price action" after a 50% drawdown....

What you are missing ,as you just started trading ,is when you are down 50%,you are most likely toes up

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 is no mathematical burden preventing the stock from rising to $10 again.

 

[taowave]

same guy with the 2 inch pecker????

Just started trading? lol who has a Lambo?

 

[SunTrader]

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?

What is so hard about you (and it seems a few other lost souls) understanding this - that I previously posted?

"But simple math aggggggggggggain tells you a stock that drops from $2 to $1, needs a 100% move to make it back to $2. With me so far? Another stock that drops from $200 to $100 needs the same 100% move to make it back to original price $200

Which has a greater probability of happening? Especially in a timely manner - like oh within a calendar year. Repeat, greater probability."

Both need a 100% move but which is more likely to actually happen?

 

[wxytrader]

What is so hard about you (and it seems a few other lost souls) understanding this - that I previously posted?

"But simple math aggggggggggggain tells you a stock that drops from $2 to $1, needs a 100% move to make it back to $2. With me so far? Another stock that drops from $200 to $100 needs the same 100% move to make it back to original price $200

Which has a greater probability of happening? Especially in a timely manner - like oh within a calendar year. Repeat, greater probability."

Both need a 100% move but which is more likely to actually happen?

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.