Oct

30

The rises in markets last week, bringing many of them to within 2% of their all time high, has left the pessimists wringing their hands in disbelief saying that nothing has changed from the Corrections of the previous week. Of course, aside from shaking the weak out of their positions, the Corrections with such reasons as the beheadings, the viruses, the Rooshans, all with the stock markets at their lowest level to bonds in 2 years, nothing did change. That's the point. However, we need a new word for the almost 10% rises that many of these markets have achieved to counter and symmetrize with the word Correction. I would suggest as a starter the word Improvement or Elevation, or Enhancement.

anonymous writes: 

After an overdue "Correction" to overbought conditions, the market has undergone during the last week, a "Re-engagement"– advancing it close to its previous position in price. In other news…

Alston Mabry writes: 

You had a Drop, followed by a Pop. They ran all the Stops.

anonymous writes: 

So if the real purpose of the market is to transfer wealth from those who use stops to those who don't, why are stops still popular?

Ed Stewart writes: 

I don't think it has to technically be the use of stop orders, it is more the movement of prices to remove potential energy - forcing the weak side of the market out of the position, maximizing volume and order flow - If I recall a dynamic described very well in Practical Speculations in the chapter that wrote about potential energy.

However the technical use of stop orders is very important too. It allows the system to offer 20-1 or more leverage while minimizing the risk to brokers and clearing firms. The high leverage plus stops minimizes the number of says it takes the average customer's account to end up as part of the brokers revenue statement and other various transaction fees. The last thing a broker wants is a customer who takes a few all or nothing fliers, as it generates limited revenue and maximizes their risk.

I did think of a few names for the type of "rise" the market has had from the low point but they were a bit… inappropriate for mixed company.

anonymous writes: 

A good offensive player will always drive to his opponents weakness, and cheat to his strength on defense. the peremptory strength of the bull is often underestimated. given the inherent drift, inflation, and the asymmetric buying power, one should should always play for that tendency.

Jim Sogi writes: 

It is as if the market came back from the dead..so in honor of Halloween, how about calling it reincarnation, or zombie mash, or thriller. Like a zombie, even though dead, still has a lot of big moves.

anonymous writes:

That's it. Resuscitation. It's the literal meaning of the Japanese kanji of my name as well…resuscitated tree. 

Steve Ellison writes:

There is a premise in the use of this term that the "correct" price is lower, a premise that has been proven false most of the time in history. Why should the move back up not also be a correction, more likely to be "correct" than the move down?


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  1. Alex on October 31, 2014 10:39 am

    If you don’t use stops then you don’t properly understand the markets in that anything can happen. So if anything can happen, you better start to think about protecting your potential downside otherwise 1 trade over a 10 year trading span will take you out of the game. That trade is coming, it always does.

    Plus, if you don’t know your risk on a trade (not investment) then you can’t get a good risk/reward ratio, most overlook this critical fact. Risk 10 to make 30, you’ve got 3:1, risk a number not yet known (no stop) and if you make 30 or even 50 ticks you might find you’re on a road to ruin as your overall risk/reward ration might be 1:1 at best but probably is under 1:1. In effect you have no hope because your analysis won’t be good enough, ie you’ll stuggle to get past 60% winners. Always exceptions to these rules, but not many, probably 1 out of 10,000 if not more.

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