Fifty Percent Principle

A rule that dictates how much of a bag of Oreos you can eat at one sitting without things getting really embarrassing.

In finance, it’s a technical trading guideline. The fifty percent principle states that a stock on an uptrend will eventually suffer a correction (if only a temporary one), giving up between half to three-quarters of its gains. After this bit of purging, the stock may continue its uptrend (it doesn't necessarily have to...but it might).

The mechanics of the fifty percent principle rely on the fact that some people are weenies. If a stock goes up by a significant amount, some percentage of traders will want to turn paper profits into real profits. They will sell, putting downward pressure on the stock. The decline will prompt other holders to jump ship, booking their own profits before the decline eats any more of the gains.

Eventually, the weak of heart will all be out of the stock and it can potentially find new buyers.