Fifty Percent Principle

Fifty Percent Principle

In technical analysis, a general rule stating that a security on an upward trend will lose between 50% and 75% of its recent gains before the upward trend continues. The 50% principle exists because some investors, seeing an upward trend, become concerned that a security is overvalued and sell their shares even though the upward trend has not ceased. Once investors realize this, they begin to buy the security and the upward trend continues.