The cliche that is suitable to describe stock prices but is that really true? Of course not, some stock price went to zero and stayed there but just because there were such precedence does not mean that this statement is not true. So how do we know when the stock price will eventually go back up after dropping so much? In today’s post, I would like to help people understand about the whole idea of fear and how it makes everything feel hopeless. Perhaps adding some details to this cliche might help us better understand why do some stocks go back up.

All volatile stocks attract traders who have no interests in the company itself

I mentioned before about the quality of investors in a particular type of market or asset class who are only in it to “get rich.” Though we can avoid those assets entirely, we cannot prevent those investors from participating in other innocent looking assets. For starters, we will usually notice those assets increase in value relentlessly for a prolonged period of time. This is despite of massive amounts of investors taking profit in the first few days of the buying. Also, it is noticeable that those assets will usually reach 2-3 times their actual market capitalisation at least before finding a random day to crash all the day from then on. This causes many investors to accumulate thinking that it will rebound while traders and big firms exit the market. These are those kinds of assets that will eventually rebound if it dropped below a valuation before the ridiculous climb.

Upside is actually good for all investors and traders

Well, this is a no brainer but one of the reasons why most legitimate assets will eventually rebound is because upside is beneficial for both investors and traders. This allows traders to make a quick buck as well as allowing shortists to reach their new price to enter into their next short position. Therefore, never doubt that a legitimate company will never rebound just because it has been hijacked by players who are only manipulating or riding the short positions of a particular asset.

“Shortists” do not like to stay on their toes for too long

Shortists are not having the time of their life simply because they are individuals or organisations betting against every employee in a company. True enough if the company is involved in some form of crisis that is caused by their own wrong doing then by all means, I think it is justifiable for shortists to do what they do. However, if they are basing their short positions on ”insider news” of sorts or reddit posts, I can only say that their confidence lasts as long as their position stays green. This also mean that shortists are constantly looking for exit points as well and there will come a point where shortists are burnt, thus causing a short squeeze for traders to punish them.

Closing thoughts

There will always be anomalies in the world that we live in but we should not use those anomalies as reasons to believe that other occurrences will never happen again. Instead, stay objective and analyse the true value of assets and overtime, you will be able to appreciate the spikes and dips in the market.