Why are there flash crashes in the stock market but no flash rallies?

Maverick74 made a great point. "markets" too often only imply the stock market. Try being short wheat during one of its bull runs. Crude oil also can be a widowmaker for stubborn bulls and bears.
 
snowman80 said:
I think generally ‘potential energy’ of the market is far greater to the downside simply because the value of speculative capital positioned to the long side is many times that of what is short or ‘sitting on the sidelines’ ready to be deployed.

OP is specifically talking about the broad stock market. Individual names or commodities are obviously different animals, so to speak.
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Yes, that is correct. I was referring to the broad stock market and more specifically, stock market index futures such as E-mini S&P500 and Nasdaq100.

I believe there are flash rallies in individual stocks as some stocks are heavily shorted. Many replies here have focused on the fear factor of shorts caught in a "flash rally" situation. A short squeeze will cause a flash rally. Perhaps flash rallies in individual stocks occurred more frequently in the early 19th century when short squeezes were more common.

So far, I have not heard of short squeeze engineered on a stock market index. I guess that is impossible given that there are too many underlying stocks in an index. Maybe that is one of the reasons why flash rallies have never occurred on stock market index so far.
 
Maverick74 said:
You clearly don't trade commodities. LOL.
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You are right. I have never traded individual commodities or bought a single commodity future before. I do hear of stories about traders being stuck limit up for several days and cannot get out. Horrifying even to imagine. I'm glad stocks do not have this limit up feature. I do not want to lose sleep for several days. Old and bold traders caught in limit up situations may die of heart attacks.
 
helpme_please said:
Yes, that is correct. I was referring to the broad stock market and more specifically, stock market index futures such as E-mini S&P500 and Nasdaq100.

I believe there are flash rallies in individual stocks as some stocks are heavily shorted. Many replies here have focused on the fear factor of shorts caught in a "flash rally" situation. A short squeeze will cause a flash rally. Perhaps flash rallies in individual stocks occurred more frequently in the early 19th century when short squeezes were more common.

So far, I have not heard of short squeeze engineered on a stock market index. I guess that is impossible given that there are too many underlying stocks in an index. Maybe that is one of the reasons why flash rallies have never occurred on stock market index so far.
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I suspect they occur during bear markets. I do know that the many of the largest daily percentage gain have occur during bear markets condition. However the last one was 10 years ago so I can't confirm and don't feel like digging through historical data to verify.

You can make money being short in a bull market and being long in a bear market. So it doesn't bother me.
 
Rallies like that in the broad equity markets don't really happen because if multiple stocks seemingly unrelated go up without any reason it's probably a good sell at that point, and so keeping irrational sharp rises in check.

However, if they go down... the fear and panic will at one point kick in and all kinds of selling orders will accumulate.

Basically, if there's an irrational sharp move up without any news... sell, because there's no underlying real reason.... if there's an irrational move down... sell as well, because shit might hit the fan.

So it's easy to write the sell program... if [within timeframe 'x'] broad market moves more than 'y'% : sell... I think the only time it wouldn't have worked was with up moves during the GFC. Irrational up was a buy back then....
 
jinxu said:
I suspect they occur during bear markets. I do know that the many of the largest daily percentage gain have occur during bear markets condition. However the last one was 10 years ago so I can't confirm and don't feel like digging through historical data to verify.

You can make money being short in a bull market and being long in a bear market. So it doesn't bother me.
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Last time I checked 16 of the 20 biggest 1-day drops in the Dow occurred while the market was bearish. The danger of a sudden drop from a bull market is over-stated.
 
tomorton said:
Last time I checked 16 of the 20 biggest 1-day drops in the Dow occurred while the market was bearish. The danger of a sudden drop from a bull market is over-stated.
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Check again. Febr 5th happened only 5 days after the ATH, hardly bearish, yet it was one of the biggest one day drop...
 
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