The Risks of Setting Targets After Parabolic Moves

Let’s talk about the pitfalls of setting strict price or market cap targets after a big spike—whether it’s up or down. It’s one of the quickest ways to totally misread the market and can lead to some serious false confidence in numbers that just don’t reflect reality.

When things are climbing, it’s easy to get caught up in the hype and think, “It hit $1 billion; why not shoot for $5 billion?” People assume that the momentum will keep going, but they overlook key factors like liquidity, positioning, and overall market mood. I love this quote from Livermore: “The trend is your friend until the end, when it bends.” Just because there’s been a parabolic rise doesn’t mean it has to hit your target.

On the downside, the same flawed thinking applies. Traders might say, “It was a $1 billion project; there’s no way it falls below $300 million.” They cling to past valuations like the market cares about history, but it really doesn’t. As Druck put it, “The best economist I know is the price action.” Keep that in mind!

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