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

[taowave]

I did a similar backtest on the Russel 3000 going back 15 years. The backtest suffered from survivorship bias which helps the OP's fallacy...

Rules were to go long when a stock was off 50% from its 252 day high, sell STOP =50% with a 100% profit target..

50% Stops were hit 57% of the time and the 100% profit target was reached 43% of the time.And that doesnt account for survivorship bias which probably would have skewed the results closer to 62% and 38%..

So while there is an apx chance of 38% that a stock doubles after getting cut in half,there is a 63% greater likelyhood that a stock off 50% declines another 50%...

In the spirit of full disclosure,the system was profitable,apx 5.9% per year,but did suffer a 60% max drawdown...

At the end of the day its a traders FALLACY to believe 50% stocks EASILY go up 100 percent.
Going down another 50% is the safer bet

the math is the dubious part. it's a fallacy. I mean it is being interpreted as an indication of probability which is a fallacy.

To test this concept, I used data from this post (26 long ETFs for up to 23 years of daily data adjusted for dividends and splits with swing changes base on the highs and lows of at least the previous 8 trading days).

I found 6440 upswings with
mean time 13.3113354037267 trading days
median time 10 trading days
mean dollar change per share per trading day change 0.481707399701033
median dollar change per share per trading day change 0.238060333333333

And 6430 downswings with
mean time 9.53965785381027 trading days
median time 7 trading days
mean dollar change per share per trading day change 0.561237425952638
median dollar change per share per trading day change 0.27939325

The downswings happened faster with more movement per bar than the upswings.
So, this evidence demonstrates it's easier for prices to go down than up.

 

[Cabin111]

Just skimming the thread...Some basics.

You get concept of the stock dropping 50% and will need to rise 100%...You learned that in second grade, right??

Let's throw out the $2. and $1. stock...It is NOT making money. It's a "potential" future money maker and can not be counted...That is where your external variable comes into play.

The blind spot you may not see is this. When a stock has a bad quarter, it is one of two thing. It either is a "one off" (fundamentals are still there), and it will drop. But it will drop with support, because most "smart" people know it is still strong.

When the $200. stock drops by 50% (bad quarter...And future earnings estimate), people rush to get out of it. Those people are pension funds and mutual funds...They flee!! That does not include the individual investor...Which may have options and margins!!

The pension fund/mutual funds have to give an account to their board, investors, and pensioners. The companies like Blackrock and Berkshire are allowed to do their own thing (in many ways).

This is not a knock...Not intended to be. You really should go (in persons) to a investing 101 class at you local community/junior college. It would help. If you are out of country...Take some business classes.

I would do this before you do any trades.

 

[wxytrader]

To test this concept, I used data from this post (26 long ETFs for up to 23 years of daily data adjusted for dividends and splits with swing changes base on the highs and lows of at least the previous 8 trading days).

I found 6440 upswings with
mean time 13.3113354037267 trading days
median time 10 trading days
mean dollar change per share per trading day change 0.481707399701033
median dollar change per share per trading day change 0.238060333333333

And 6430 downswings with
mean time 9.53965785381027 trading days
median time 7 trading days
mean dollar change per share per trading day change 0.561237425952638
median dollar change per share per trading day change 0.27939325

The downswings happened faster with more movement per bar than the upswings.
So, this evidence demonstrates it's easier for prices to go down than up.

Not in an uptrend.

 

[wxytrader]

This is not a knock...Not intended to be. You really should go (in persons) to a investing 101 class at you local community/junior college. It would help. If you are out of country...Take some business classes.

I would do this before you do any trades.

fundamentals are irrelevant...all stocks follow the same 5 cycle patterns regardless. Is the professor driving a Lambo to school? While he was having his morning coffee at starbucks I was across the street loading up a prepaid credit card to buy Bitcoin back in 2018.

 

[SunTrader]

The market should be more balanced like if there was a cap at 1% of the float. Currently institutions own 58% of AAPL according to google. If an institution owns enough shares that managing those shares can affect the price of the stock in a measurable way then that is manipulation and should not be permitted.

View attachment 325432

LOL glad I didn't waste another day with this "smart" phone low battery (not just his cell) trader who is going to take down the CBOE and all the other OPS exchanges that are doing it all wrong. Damn right. Just as soon as he can drive his Lambo to a better cell reception location with a freebie 120 receptacle.

 

[wxytrader]

Just as soon as he can drive his Lambo to a better cell reception location..

Yeah like when I'm picking up your gf.

 

[ph1l]

Not in an uptrend.

Can you explain what you mean by "Not in an uptrend?" During my measurement period all 26 ETFs had overall uptrends like in this one.

 

[SunTrader]

Yeah like when I'm picking up your gf.

Gf? Would have thought you would have a binary/non-binary whatever "friend" to go with the type of trading you uhh prefer. No? Or are you a real current day hipster that goes both ways.

 

[wxytrader]

Can you explain what you mean by "Not in an uptrend?" During my measurement period all 26 ETFs had overall uptrends like in this one.
View attachment 325437

Yeah look how easily every downturn resumed to previous price and beyond. BUT I thought your math said price would have a difficult time doing this since whatever percent it pulled back, it would need a greater percent to recover?

 

[SunTrader]

Geez a strong uptrend doesn't have large retracements to overcome. 50 friggen percent drops do. Haha

Someone got a 7 yr old to explain this to wxy. Ask the 7 yr old to use crayons even if they think that is silly to do.