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

[wxytrader]

It's not irrelevant, as the article is not attempting to portray how "easy or difficult" it is for a stock to get back to it's original price. It is simply pointing out the factual maths.

Yes but the "math" doesn't apply. If it did you would NEVER get a trading range, and trading ranges are the most common trading phenonium along with triangles. I think where people are getting confused is they are applying the logic as if the stock itself has to over come the math...it doesn't, it only has to over come the price...and price moves in increments up or down based on external factors or just basic TA. It will move up a $1 just as easily as it dropped a $1.

If it was that easy to make 100% everyone would be rich.

In reality a stock goes down 50% it is down for a good reason. Its unlikely to back to 100% anytime soon. If it is a volatile penny stock it could also go to 0.
There will always be some exceptions, and you will point them out but that is in hindsight.

Even if its a blue chip stock that's down 50%, it could take 10 years or longer to get back to even, eg GE.

It is exactly that easy...not for the retail that panic sells after a capitulation...but for the trader buying at those levels they will routinely get 100% 200% 300% or more.

We aren't doing a fundamental analysis here, we are talking TA. Stocks routinely move in this pattern. How do you explain how common trading ranges are?

 

[rb7]

Yes but the "math" doesn't apply. If it did you would NEVER get a trading range, and trading ranges are the most common trading phenonium along with triangles. I think where people are getting confused is they are applying the logic as if the stock itself has to over come the math...it doesn't, it only has to over come the price...and price moves in increments up or down based on external factors or just basic TA. It will move up a $1 just as easily as it dropped a $1.



It is exactly that easy...not for the retail that panic sells after a capitulation...but for the trader buying at those levels they will routinely get 100% 200% 300% or more.

We aren't doing a fundamental analysis here, we are talking TA. Stocks routinely move in this pattern. How do you explain how common trading ranges are?

No wonder why so many traders don't make any money...

 

[wxytrader]

No wonder why so many traders don't make any money...

You guys seriously can't be this dense? Price moves in increments of money, not in increments of "how much percent does this need to increase to overcome a previous drop in percent from some arbitrary price point". If this trading fallacy were true, it would be statistically impossible to consistently return to a previous price level, forcing the market to be in an eternal down trend lol.

 

[tomkat22]

You guys seriously can't be this dense? Price moves in increments of money, not in percents. Just look at ANY chart to see how often price returns to previous levels, which if this fallacy were true, would be statistically impossible forcing the market to be in an eternal down trend lol.

That's the way I tend to look at it as well. People who are obsessed with percentages are usually bankers or very long term buy and hold investors.That includes dumb money,mom and pop retail investors. Folks trading shorter time frames should just focus on price and what's moving that price up or down. Do that and the percentages and your account balance will take care of themselves.

 

[wxytrader]

That's the way I tend to look at it as well. People who are obsessed with percentages are usually bankers or very long term buy and hold investors.That includes dumb money,mom and pop retail investors. Folks trading shorter time frames should just focus on price and what's moving that price up or down. Do that and the percentages and your account balance will take care of themselves.

It's true you can be too smart to make money in stocks...ie accountants who get fixated on return of capital etc...but this isn't being too smart...its a complete and total fallacy.

 

[SunTrader]

Oh how I like stubborn, ignorant "traders" who don't understand common sense math believing they know better than the market. More the merrier.

 

[ironchef]

Now check tech stocks after the 2000 DotBomb.

Lived through that one too. Some dotcom holdings went to zero. Others like MSFT, GMH, GE... did well. Overall still better than SPY. Speaking of GE, I got out of when I read the CEO always travelled with two private GulfStreams, one he used as a spare, just in case! I knew with someone like that at the helm, it was only a matter of time before it went to hell.

 

[wxytrader]

Oh how I like stubborn, ignorant "traders" who don't understand common sense math believing they know better than the market. More the merrier.

Explain to me how a trading range happens then? According to you a trading range is a statistical impossibility yet they a benchmark of TA. If this fallacy were true then mathematically you should never buy a stock once it has dropped because statistically it will be harder for it to return to the previous price...so basically value trading cannot exist...quick somebody call Warren Buffet! You should only ever buy stocks at the highs lol...good luck with that strategy.

All this trading fallacy does is say "sell your shares so somebody else can get the returns."

 

[SunTrader]

Lived through that one too. Some dotcom holdings went to zero. Others like MSFT, GMH, GE... did well. Overall still better than SPY. Speaking of GE, I got out of when I read the CEO always travelled with two private GulfStreams, one he used as a spare, just in case! I knew with someone like that at the helm, it was only a matter of time before it went to hell.

Better relatively speaking maybe because MSFT and GE both lost over -60% of the prior 10 years move.

GMH?

 

[SunTrader]

Explain to me how a trading range happens then? According to you it's an almost impossibility yet it 50% of the time if not more, stocks are trading in a range. If this fallacy were true then mathematically you should never buy a stock once it has dropped because statistically it will be hard for it to return to the previous high...so basically value trading cannot exist.

What you posted from investo has nothing zip zilch to do with trading ranges, trends, corrections, interplanetary time travel, whatever. Just basic math is all.

Buy a stock at $100, it drops to $50. You are sitting on a 50% loss if you close it at that level.

If not in order to make back that $50 drop it has to move 100% back up.

Now let's change things up a bit and say you bought @ $100 - which was an alltime high. Alltime highs mean there are no long holders currently in a losing trade. Shorts are losing yes, no longs. Well if price continues to rise longs are even more happier and shorts are crying and some covering. Best of both worlds ... for longs.

Flip that around when price is dropping and realize the headwinds against recovering from a 50% drop. And oh BTW time is money. Sure you can just hodled if you don't care about having good hard-earned money, that could be in something better, sitting idle or how about seeing stock drop even further down.