Is the article claiming that there is less of a probability for the stock price to return to its previous level of $10 because that would require a 100% gain versus only the 50% drop it took to $5? Then yes it is an example of the traders fallacy. How about you explain to me why you think it would be harder (less probable) for the stock to return to $10?
Dude, here are the main points of the article: 1. stocks go down, so what do you do? sell or hold? 2. it goes over simple math of percentage recovery needed when stocks drop at different amount (simple math) 3. it even confirms the fact that stocks do recover: "This isn't to say that rebounds never happen...", 4. but that's not the point of the article. They are merely providing some things to consider before selling your stocks at a loss vs holding it during a drawdown. I'm curious, point me specifically where in the article it says "it's less probable for stocks to recover its value after a drop". This will help all of us identify the root cause of this useless thread.
Yes, that is a stone cold mathematical fact. You decided to interpret that as Investopedia saying that it will be twice as hard for the stock to return to its original price, as it it to fall. That is not what Investopedia is saying. While, everything that you are saying is correct, your decision to use the Investopedia quote as example was incorrect.
"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.
I’m too busy to read the whole thread, but it seems to me that you’re confused by the fact that lower priced stocks (which you give as an example) are far more erratic percentage wise than higher priced stocks, and you really cannot compare very low-priced stocks which in general have huge percentage swings to high- priced stocks which in general have smaller percentage swings. The other traders that are arguing with are correct. Here is a table with what % gain is needed to recover after initial capital loss.
I'm torn between amusement and disbelief. I think I'm done here. It's Sunday, time to prep and put all this bullshit aside and trade. that's all that matters right? Making money.
First of all your chart is wrong. Secondly, it has nothing to do with the traders fallacy. YOUR own profits and losses are irrelevant. The traders fallacy incorrectly assumes that because going from $10 to $5 is a 50% loss, and going from $5 to $10 is a 100% gain, means that there is less probability of price returning to $10. There is not.
WXY the best I can figure is they think there is some mysterious,intrinsic force in the Universe that makes it harder for a company to lift it's stock price than lower it. LOL.
Exactly. To think this all started and went on and on because OP can't grasp that. LOL "Try" to make a point about something completely different from the original quote. Cray cray.