Panic leads to rebound

After four days of selling and some panic the market rebounded. Invariably when panic sets in in the market, there is a rebound. Psychologically it is difficult trade for most traders to take that trade. But that is why it is such a high probability trade. The panic buy trade is best summarized in :


Henry Clews wrote in Twenty-Eight Years in Wall Street (1887):

But few gain sufficient experience in Wall Street to command success until they reach that period of life in which they have one foot in the grave. When this time comes, these old veterans of the Street usually spend long intervals of repose at their comfortable homes, and in times of panic, which recur sometimes oftener than once a year, these old fellows will be seen in Wall Street, hobbling down on their canes to their brokers’ offices.

Then they always buy good stocks to the extent of their bank balances, which they have been permitted to accumulate for just such an emergency. The panic usually rages until enough of these cash purchases of stock is made to afford a big “rake in.” When the panic has spent its force, these old fellows, who have been resting judiciously on their oars in expectation of the inevitable event, which usually returns with the regularity of the seasons, quickly realize, deposit their profits with their bankers, or the overplus thereof, after purchasing more real estate that is on the up grade, for permanent investment, and retire for another season to the quietude of their splendid homes and the bosoms of their happy families.

Such trades are for quick and nimble traders and one must quickly bank the profit on such trades.