5 ms·

tl;dr It’s not the freaking out that hurts them so much as the lack of freaking back in on the rebound

• qeternity 5y ago
  Well, you either don’t freak out, or your freak out and freak in again. History has proven that the former is much easier than the latter. Bottoms occur when the last people panic sell. People tend to extrapolate trends poorly.
  • quickthrowman 5y ago
    You have it backwards in the last paragraph, shorts covering is generally what causes a bottom. This is why shorts are good for stocks, they’re the first to buy the crash.
    • qeternity 5y ago
      Hedge fund trader here. Who do you think shorts are buying from? Panic sellers. But anyway, in equities, which is what most people invest in, the longs greatly outnumber the shorts. So short covering has a much smaller impact than a reduction in panic selling.
    • pashamur 5y ago
      Big crashes (and fast-drop bottoms) happen not because of panic selling, but because of forced selling (covering margin calls, getting liquidated, etc). Panic selling usually leads to slow grind downs. Shorts usually cover once the rebound starts, not when things are free-falling (their trailing stops get triggered, etc)
      • qeternity 5y ago
        No. Again, like short selling, you misunderstand the relative ratios of beta length vs. everything else. Smaller moves, at the money, occur because of this or in single names in multi SD moves (a la Archegos). The prevalence of vol control strats today means we also see these sorts of moves around key index gamma levels, but we're talking 100bps travel. Mar'20, 2008, etc - these did not happen because guys were getting margined. These happened because because were panic selling huge amounts of length.