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

Are you saying that price stops are an ineffective method of managing risk as it comes at too high a price???

Are you suggesting a trader should average down??

Do you differentiate between day trading and investing??

"ONLY" a 50% drawdown??? Do you not make a distinction between a 10 stock portfolio vs a single asset??

Do you trade?






wxytrader said:
The article used 50% as an arbitrary number to use as an example. Obviously if a stock drops 50% it's a capitulation and you will have to wait for a recovery. The part about the article that makes no sense is showing that after only a 50% drop, the stock/portfolio now has to recover 100% just to reach break even...implying that it will be harder for a stock or portfolio to recover, and that traders need to mitigate losses because of this. This is a fallacy
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Of course it does.How many stocks double in a reasonable time frame?


And I ask again,whats more likely, a stock dropping 50% and rebounding 100% or a stock dropping 50% only to fall another 50%?? You dont know,do you :)

I fully understand the "limitations" of a lognormal distribution.but your whole argument is banking on a tail event to recover..dont you trade options??

It sounds to me like you are implying that a stock that is down 50% has a greater chance to double than a stock that is perhaps flat or up???

You keep on saying less likely,but you dont say less likely than option B..

Regardless,massive drawdowns are crushers especially when compounding..



wxytrader said:
If a $10 stock has dropped by 50% to $5 it will have to recover by 100% to return to $10. Do you think this makes your chances of recovering your losses less likely?
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destriero said:
I crashed at Laguna Seca into the Armco barriers. You need to stop talking about your classic Lambo.
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If you read and heed his fervent suppositions here and apply them to your option stategies, you could buy 5 classic Lamborghini's. What are you, a f'n noob?
 
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