The hidden dangers of parabolic stock moves — and how to best handle them

FAN Editor

Alex Karp, co-founder and CEO of Palantir, arrives for a U.S. Senate bipartisan Artificial Intelligence Insight Forum at the U.S. Capitol in Washington, D.C., on Sept. 13, 2023.

Stefani Reynolds | Afp | Getty Images

People always ask me why I dislike parabolic moves. The answer is simple: When a stock rises significantly in a short period — resulting in a price chart that resembles the curve of a parabola — it goes down far faster than it can creep up, for whatever reason. Consider a parabolic move from a stock that goes from $18 to $30 over the course of 12 sessions. It will go back down, maybe not to $18, but certainly close to it in three days. You will give back some, but not all, of the gain if you got in at $21. However, you will most likely have given up all, and perhaps more, if you bought above $21.

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