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

[wxytrader]

You're suffering from the non-sequitur fallacy, which is you, as I pointed out on page 1, incorrectly concluding that the paragraph you used to start this thread was saying anything about the "difficulty" of a stock recovering 100% after a 50% drop.

It did not.

What the paragraph is pointing out is that some people seem to blindly sell their stocks after a large drop at an incorrect price point, thinking they have recovered their losses. It specifically states that some people whose stock drops 20% one week and then see it go up 20% the next week might think they will be able to sell at break even at that point.

The paragraph/article says NOTHING about probabilities. This whole thread is YOUR folly, in that you are trying to use the wrong end to justify your mean.

There is absolutely nothing wrong with what Investopedia wrote there. The problem is YOU.

The article implies that the stock has only dropped 50% but has to recover 100% for you to gain your losses back, therefore implying that it is somehow harder for that to happen when it is not.

 

[wxytrader]

If NVDA drops 50% tomorrow... I'm going all in on the November $460 calls.

You can do whatever you want. All I'm saying is that if it does, it will return to the same level with as much ease as it dropped.

 

[taowave]

Old enough to drive his Daddys Lambo,cause he sure as fook never made 100k trading

No, you are wrong on both counts.

A company grows revenue and earnings quarter after quarter. The company becomes larger and more valuable. The stock price goes up. That's called fundamentals...

Put 500 stocks like that in an index... the index rises.

Perpetual downtrend???!!!
That makes zero sense.
How are old are you?

You are obviously trading bs stocks like Gamestop, or AMC.

 

[SunTrader]

Old enough to drive his Daddys Lambo,cause he sure as fook never made 100k trading

Well with him being an offspring, I can't see how Daddy's could have a earned enuf for anything eye-talian other than maybe a Fiat Geppetto.

 

[destriero]

I crashed at Laguna Seca into the Armco barriers. You need to stop talking about your classic Lambo.

 

[schizo]

The article implies that the stock has only dropped 50% but has to recover 100% for you to gain your losses back, therefore implying that it is somehow harder for that to happen when it is not.

This is not that hard concept to understand. In layman's term, it just means a stock will decline faster than it can rise. As a trader, I personally experienced 3 bear markets. Each time, the market took a nosedive that lasted anywhere between 12-24 months. But it took significantly longer to recover, usually double that time or even longer.

What you're implying is that a given stock like GME can drop one day and recover the same extent the next day. While that is doable on a daily basis (or even weekly basis), it would be pretty damn difficult if it stretches out to the monthly or longer.

 

[SunTrader]

Stairs up, elevator {shaft} down.

 

[wxytrader]

Old enough to drive his Daddys Lambo,cause he sure as fook never made 100k trading

Well with him being an offspring, I can't see how Daddy's could have a earned enuf for anything eye-talian other than maybe a Fiat Geppetto.

I crashed at Laguna Seca into the Armco barriers. You need to stop talking about your classic Lambo.

Actually, I will be picking up my Lotus Emira 1st edition in March.
This is the build.

 

[taowave]

No,only a complete NOOB would would post that "if a stock drops 20%,it will simply have to rise by the same percentage to break even"...

You are the only guy on this board who is confusing percentages with probabilities..

You havent mentioned distributions,volatility or anything remotely close.

Why not run a simple backtest purchasing stocks 50% off their 1-2 year highs and come up with a distribution of returns? Ill spot you survivorship bias..

How much money have you made trading skew???

"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 mathematics and take in losses that are greater than they realize due to emotional distress. They falsely believe that if a stock drops 20%, it will simply have to rise by that same percentage to break even."

This is the traders fallacy! The percentages are incorrectly being presented as probabilities of the stock returning to $10. They should not factor in AT ALL in your decision making process. The stock dropped by $5 and only has to increase by $5 to return to break even. The price returning to $10 is no less likely than it was to drop to $5. The stock is not burdened to return to its previous level by any factors other than whatever the catalyst was that led to the drop...be that a bad earnings, bad news, range bound, ATR etc etc etc. That is the only thing to base your decision on as to whether to hold or sell your position.

 

[taowave]

When is your Drivers Ed test?

Actually, I will be picking up my Lotus Emira 1st edition in March.
This is the build.


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