Author Topic: What if every Market rise/fall were a rise?  (Read 1964 times)

AZryan

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What if every Market rise/fall were a rise?
« on: January 18, 2017, 07:51:31 AM »
How much would the stock market make in a year if every daily rise AND fall were recorded as a rise?
For example -say it was up on Monday .32% and down Tuesday .44%, but you recorded both as 'up'. By the end of the year, it ought to show a profit of what... ~120% or something? But it actually only makes ~9% or so because of how evenly balanced the ups/downs are?

I'm just curious to compare how much the market moves/fluctuates vs. what it ends up actually making per year.
Is the short cut to just use the volatility and avg. return (somehow)?

I'm trying to get the best feel I can for how the market moves. Like -
How much does it move on avg. per day up or down? and -
How many days is the Market open? ~250 a year?

Anyone else ever think about these facts/statistics?

If you're near/at retirement, you know you typically see a gain or loss of thousands of dollars every day, yet you mostly ignore it 'cuz you know it only balances out to a tiny actual gain per day. I'd just like to know what the diff. really is, rather than 'a way LOT vs. a tiny bit'.

jjcamembert

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Re: What if every Market rise/fall were a rise?
« Reply #1 on: January 18, 2017, 03:36:35 PM »
I think you're close to the answer thinking about volatility. However, volatility fluctuates so the expected move on one day would not be the same as another. 

I think this study may be helpful in answering your question (can skip ahead 5 minutes):
https://www.tastytrade.com/tt/shows/market-measures/episodes/market-movements-high-and-low-iv-05-10-2016

You may also want to look into beta-weighting which is a measure of how much risk your portfolio has. Then you can compute your risk by looking at current volatility as it relates to your portfolio.

In terms of volatility and risk, I don't think that what the market makes per year matters. Remember that the 9% per year market return is an average of multiple years of data which have both up and down years. This year we could go up 9%, we could go down -9%, I don't know. What matters is, if the market does go down -9%, how much would you lose (your risk) and is that acceptable? i.e. can you afford to take that loss and wait for the market to average out again?

2Birds1Stone

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Re: What if every Market rise/fall were a rise?
« Reply #2 on: January 18, 2017, 04:35:18 PM »
I don't understand the point of this exercise, could you elaborate?

If you are looking for statistical data to help predict future behavior, I think you might be disappointed.

TheAnonOne

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Re: What if every Market rise/fall were a rise?
« Reply #3 on: January 19, 2017, 12:00:20 PM »
Guys, don't try to rip apart the guys inner mind jeez

It's just a silly thought exersize. According to google and some pdf i found the average daily swing is 1.4%

1.4% * 252 (average yearly trading days)

Your answer is 352.8% yearly.

jjcamembert

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Re: What if every Market rise/fall were a rise?
« Reply #4 on: January 19, 2017, 02:53:05 PM »
Actually this is the study I was thinking of at first but couldn't find it yesterday. They created several graphs showing what the average up and average down move was in 3 different products:

https://www.tastytrade.com/tt/shows/market-measures/episodes/closing-at-highs-or-lows-is-the-trend-your-friend-01-06-2017

They came up with around the same 1.4% number (depending on the product, around 0.7% up and 0.8% down) but it highlights that the market tends to be random.

I don't think you can use these numbers to calculate how much (total) the market could or did swing because the up/down days are interspersed. You'd just have to look at the low of the year and the high of the year.

TheAnonOne

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Re: What if every Market rise/fall were a rise?
« Reply #5 on: January 19, 2017, 03:10:24 PM »
Actually this is the study I was thinking of at first but couldn't find it yesterday. They created several graphs showing what the average up and average down move was in 3 different products:

https://www.tastytrade.com/tt/shows/market-measures/episodes/closing-at-highs-or-lows-is-the-trend-your-friend-01-06-2017

They came up with around the same 1.4% number (depending on the product, around 0.7% up and 0.8% down) but it highlights that the market tends to be random.

I don't think you can use these numbers to calculate how much (total) the market could or did swing because the up/down days are interspersed. You'd just have to look at the low of the year and the high of the year.

Right, I could say every second it goes up and down .001% and add in all the microswings as well.

I just compiled a reasonably accurate answer for the OP without dedicating myself to a month long research project!

AZryan

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Re: What if every Market rise/fall were a rise?
« Reply #6 on: January 20, 2017, 12:18:30 PM »
'TheAnonOne'-

Thanks. I literally missed your answer in how messy this all instantly got. But that's pretty much what I was looking for.

This article (from 2012) is also nice, short, clear and has a simple chart of related info.

https://cognitiveinvesting.com/2012/01/17/how-much-fluctuation-should-i-expect-of-the-stock-market/

I wasn't sure if this sort of thing could be of any use. Sometimes a different perspective, or angle of looking at something, reveals something new. Who knows?

Seems the market goes up ~.028% to .036% per day on avg. (if the market makes ~7-9% a year). But we almost always see far wider daily swings. Maybe there's a simple, clever way to relate actual daily results (that really don't mean shit) with statistical facts (that actually do)?

It seems that the market moves ~40-50 times more per day on avg. than the actual very tiny avg. per day profit that we probably will get in the long run over decades.

Maybe knowing that will help other people not flip out when any random thing happens per day?  I dunno.



TheAnonOne

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Re: What if every Market rise/fall were a rise?
« Reply #7 on: January 20, 2017, 12:21:50 PM »
No problem.

As to your second point. I don't think the metric provides much actionable information. There isn't much you can do with it. Even knowing the market will return an average of 7% changes very little.

marty998

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Re: What if every Market rise/fall were a rise?
« Reply #8 on: January 20, 2017, 04:05:02 PM »
No problem.

As to your second point. I don't think the metric provides much actionable information. There isn't much you can do with it. Even knowing the market will return an average of 7% changes very little.

Yo would need some form of foresight to be long on the up days and short on the down days to take some action.

If it were that easy everyone would do it...