Speed of price rises compared to price declines

[JTrader]

Hi

EURUSD has been in decline over the last 6 weeks or so.

During this period I have become accustomed to shorting on a low intraday timeframe. I would say that I feel more comfortable shorting than going long.

The trouble is the trend will turn eventually, and if a trader is not comforttable going long, they are then likely to miss entries for good uptrends, or ne trading short when they should be trading long - if they have not recognised the turn in market direction.

I believe that prices collapse at a greater speed, more often, than prices rise. This is not to say that prices don't sometimes rise at an equal speed to a fast speed price collapse, but that a falling price more often carries this high speed momentum than does a rising price.

For example, with EURUSD, when price dips below a 50 or 100, it will often then start to collapse further below that level towards the next 25 then 00, especially quickly if the momentum is being driven by a significant economic news release.
I don't think the same can be said so much about when price rises above a 50 or 100 level.
However, this may not be true, please correct me if you know or think differently. What do you think?

Some traders are therefore inclined to treat long and short trades differently due to some of these factors.

I would rather be able to treat long and short trades as equals but opposites.

Does anyone have any advice on reversing your preferred trade direction, once the longer term price direction (daily and weekly charts) start to favour up (or the opposite direction to the one you may have become accustomed to favouring during the daily/weekly downtrend)?

For you, does this reversal to looking for long trades after becoming used to and preferring to short (or vice versa) come naturally after a few days or so of mistakes (eg. looking to continue trading in your favoured, but now the wrong direction), after the longer term trend direction has turned?

Many thanks.

 

[Rhody Trader]

If we were talking about stocks or commodities or some other instrument, I would agree that prices tend to fall more quickly than rise. After all, traders are more likely to panic sell than to panic buy.

In forex, though, the structure of things is entirely different. By definition one is both buying and selling at the same time. That, to my mind, is why forex price action tends to be a bit smoother and less jerky than is the case in other markets, especially to the downside.

 

[firewalker99]

I believe that prices collapse at a greater speed, more often, than prices rise. This is not to say that prices don't sometimes rise at an equal speed to a fast speed price collapse, but that a falling price more often carries this high speed momentum than does a rising price.

Hi Jtrader, what do you think is the greater emotion?
Fear... or greed...? That should explain why prices can fall on their own, while it takes more to get them up.

 

[JTrader]

Hi Jtrader, what do you think is the greater emotion?
Fear... or greed...? That should explain why prices can fall on their own, while it takes more to get them up.

Hi FW

i think fear is probably more prevalent and can explain why prices fall quickly, more often than they rise quickly.

Fear and greed are closely related, but to some extent, to be greedy, you need to be in profit.

 

[Tuffty]

Of the largest one day moves in the Dow since 1885 55% were down and 45% were up. There does appear to be some bias towards fear but not as much as (I think) is generally thought.

 

[JTrader]

Its a strange issue this because panic & fear come into play whether long or short.


If prices do fall/collapse faster than they rise, perhaps this is because for a price to rise, traders need to be slapping bid orders onto the order book.
For prices to fall, traders just need to be pressing the sell/short button, which then removes all the bid/buy orders - sending (the charts bid) price down.

 

[firewalker99]

Of the largest one day moves in the Dow since 1885 55% were down and 45% were up. There does appear to be some bias towards fear but not as much as (I think) is generally thought.

Interesting statistic, but have you looked at how much these down days lose (in %) and how much the up days gain?

I've found this:
http://www.mdleasing.com/djia-losses.htm

but looking for some stats about biggest gain days

 

[Tuffty]

The stats are from Siegel; Stocks for the Long Run; 2002. (page 218)

The sample size is only 51 (ie he's only noted the 51 biggest one day moves, the smallest move being 6.31% and the largest -22.61%) .

The total up% and down% comes out as pretty much same ratio as the nos of up v down at 46% v 54%.

I haven't done any stat tests on this but given the sample size this may not even be that significant.

The reason why he looks at this in the book was to make the point that less than 25% of these moves were associated with specific world political or economic events.

 

[firewalker99]

The stats are from Siegel; Stocks for the Long Run; 2002. (page 218)

The sample size is only 51 (ie he's only noted the 51 biggest one day moves, the smallest move being 6.31% and the largest -22.61%) .

The total up% and down% comes out as pretty much same ratio as the nos of up v down at 46% v 54%.

I haven't done any stat tests on this but given the sample size this may not even be that significant.

The reason why he looks at this in the book was to make the point that less than 25% of these moves were associated with specific world political or economic events.

Yes, that's worth mentioning. Most of these major moves have been difficult to explain. Of course in hindsight people will always try to give meaning to it. I think Black Monday still remains a bit of a mystery though.

 

[Tuffty]

I've just looked at the FTSE100 24hr moves close to close since 14/4/98 to 16/3/07. I choose those two dates because the FTSE level was around 6100 on both dates so we're not getting any upwards bias into the results. However I've not adjusted for the index going ex-div.

There is a slight bias as per the Dow. Moves over 2.5% gave 54.3% down and 45.7% up (total 105 such moves in a total nos of days of 2255). The next stage would be to normalize volatility so we're not just seeing the volatile periods (eg market bottoms).

 

[Connie Brown]

Its a strange issue this because panic & fear come into play whether long or short.

Not so strange when you think about it. For every buy there is a sell. When you're going Long, someone is Selling. When you're Selling someone is Buying. There are always two sides to each transaction. If you're going to equate emotions with positions, which isn't necessarily valid, there is going to be greed and fear on each and every single transaction.

 

[Connie Brown]

I believe that prices collapse at a greater speed, more often, than prices rise. This is not to say that prices don't sometimes rise at an equal speed to a fast speed price collapse, but that a falling price more often carries this high speed momentum than does a rising price.

Is this observation true across all instruments? Or just for instance exchange traded instruments? What about OTC? FX? By example check AMEX/NYSE stocks against NASDAQ stocks.

In my previous post I indicated that there are two sides to any transaction. There are. But traders and specific trades aren't always directly matched. You have to consider in any segment of the cycle of the instrument you're trading, 'who might want to buy or sell and what are the motivations for them to want to buy or to sell?'. And then consider, 'Who can buy or sell and who must buy or sell?'. If you had to buy or sell and didn't want to, what might you do to restrict and constrain those who would otherwise force you to do so? And what kind of shape would this impart to the resultant price action?