First bought MSFT when it was at ATH ~$60 a share in 2000.
GMH, Parent company of DirecTV.
OMG I can't believe this fallacy still exists in trading!
- Thread starter wxytrader
- Start date
GMH, Parent company of DirecTV.
That's my whole point. The "headwind" can only be the actual sentiment of the market...so any investment decision should be based on that...NOT on the percentage handicap you are falsely placing on it.
I mean if there are enough people out there who believe in the fallacy then it could have a self fullfilling prophecy on sentiment...but this would be a human characteristic not a mathmatical one.
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Arithmetic. It's not for everyone.
Wow the level of ignorance around here is both astounding and reassuring that there are still plenty of traders willing to part with their shares at a reduced price based on a mathematical fallacy.
Let me try an analogy to help you guys out. If you were 400lbs and lost 200lbs...that's a 50% drop. If we apply the math from the traders fallacy, it should be twice as hard to gain all that weight back than it was to lose it, and all diet stories would be a resounding success! 
"According to the latest weight-loss research, 95% of dieters end up regaining the weight they lost within two years. "
https://health.osu.edu/wellness/exercise-and-nutrition/that-diet-probably-did-not-work#:~:text=According to the latest weight,people maintain that weight loss.
So if we analyze this, the re-gaining of weight has to do with a lot of factors...calories, exercise, health, etc...you know what isn't a factor? Math.
This is where you guys are getting confused. Price action is affected by many factors, but just like with dieting, the percentage loss itself has no bearing on the potential gains. The math that does matter regarding dieting is the 95% failure rate.
"According to the latest weight-loss research, 95% of dieters end up regaining the weight they lost within two years. "
https://health.osu.edu/wellness/exercise-and-nutrition/that-diet-probably-did-not-work#:~:text=According to the latest weight,people maintain that weight loss.
So if we analyze this, the re-gaining of weight has to do with a lot of factors...calories, exercise, health, etc...you know what isn't a factor? Math.
This is where you guys are getting confused. Price action is affected by many factors, but just like with dieting, the percentage loss itself has no bearing on the potential gains. The math that does matter regarding dieting is the 95% failure rate.
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Missed the whole point by ... at least 50%. Haha
If a stock, not the overall market, drops 50% that tells you what the sentiment is for that stock. Hoping and praying is for religious folks.
Traders who want to make a buck follow price. Gamblers stick around once the chit hits the fan.
Lose money on one, make it back and then some on the next one.
Comprehension. It's not for everyone.Let me try an analogy to help you guys out. If you were 400lbs and lost 200lbs...that's a 50% drop. If we apply the math from the traders fallacy, it should be twice as hard to gain all that weight back than it was to lose it, and all diet stories would be a resounding success!
"According to the latest weight-loss research, 95% of dieters end up regaining the weight they lost within two years. "
https://health.osu.edu/wellness/exercise-and-nutrition/that-diet-probably-did-not-work#:~:text=According to the latest weight,people maintain that weight loss.
So if we analyze this, the re-gaining of weight has to do with a lot of factors...calories, exercise, health, etc...you know what isn't a factor? Math.
I'll let you draw the similarities with price action.
Yes, but you are talking about sentiment, and basing a trading decision on that, not on the fallacy that it will somehow be harder for the stock to return to its previous level. If sentiment changes the stock will return to that level. The traders fallacy is claiming that with sentiment being equal, somehow the math will hold it back lol. If that's not the case then why is it even a thing?
The whole premise is wrong. If a position goes from $100 to $50, then it needs to gain $50 to be even again. That's it. There is no math or probabilities handicapping it's movement. The only thing that matters are market factors. What the traders fallacy is basically trying to say that if a stock drops from $100 to $99 then it will be harder for it to return to $100 because of math...not market factors. (100-1%=99+1% is 99.999 not 100) so theoretically the market would be in a terminal state of decline.
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Well, it's kind of a linear thing. I mean if a $100 stock drops to $95 (a 5% loss obviously), one only needs to gain 5.62% to break even. $90---> a 10% drop---> you need 11.1% to break even. That's why most normal stocks can channel or trend in one direction or the other.
I can't think of too many stocks that channel in a 50%/100% range. Maybe some of those crazy Chinese stocks that appear out of nowhere for a few days that go from $10 to $200 and then to $3... but as a whole, not too many on the SPX.
And sure there'll be news events that may cause an oversold condition, but that breaks the channel, and if the news is nothing, the stock will return to the channel once the dust settles.
There will always be exceptions... but for every NVDA and META.... you can find a SNAP and TWLO.
wxytrader needs an example like a ten years old boy, otherwise, he will not get it.
1000 level, drop of 50% = 500
you are at a new level now. you are at 500. Read this line ten times.
How much do you need to get back to 1000? Remember that you are at 500.
If you increase a 50% you are at 750, not enough buddy. So you need 100% to get back to where you were.
Simple, but still complex to some.
1000 level, drop of 50% = 500
you are at a new level now. you are at 500. Read this line ten times.
How much do you need to get back to 1000? Remember that you are at 500.
If you increase a 50% you are at 750, not enough buddy. So you need 100% to get back to where you were.
Simple, but still complex to some.