The Dow peaked in August, 1987, two months before the crash. The week before the crash, the Dow was declining precipitously. The Friday before Black Monday, the Dow declined 150 pts, or about 6%. In today’s terms, that’s a 1,000 pt decline in one day.
http://en.wikipedia.org/wiki/Black_Monda...
Everyone had to digest this information over the weekend, and many decided to sell on the open the following Monday. Others put stops on their positions. Many funds decided to sell stock index futures if it declined further to protect their long positions.
On Black Monday, the Dow opened down 200 pts, which triggered many more stops. As people began the mass exodus out of the market, the computer sell programs began to kick in. The instantaneous transmission of so many sell orders overwhelmed the DOT system causing a lag in the data, and everyone was effectively blind to price. Nobody knew where it was or how bad it was. When a trader doesn’t know where he is in the market, he gets out.
Herd-like panic set in and people started dumping stock in the dark without knowing what their losses were or whether their orders would execute fast enough to keep up with plummeting prices.
There was nothing “instantaneous” about the crash. The crash took several months to develop. The Dow was already in steep decline and down more than 10% over several weeks. There is no analogy with a video game. We’re talking real life savings and your entire future at stake, a meltdown of the entire financial system.
People will not “stop what they’re doing” to play “World of Warcraft”, but you will “stop what you’re doing” to protect your life savings and your family. I called my broker at the time to sell some stock, but couldn’t get through (busy signal -- no internet in 1987). So I went down to their office on my lunch break. People were lined up out the door to sell stock. After standing in line for half an hour, I gave up and went back to work. It made people a little sick at the end of the day to find out the Dow was down 22% in one day.
http://www.investopedia.com/features/cra...
So I know that it pretty much crashed in one day. How does that work? Does every single person just all of sudden decide "I should take my money out of the stocks" Thats like everyone just dropping what there doing and saying "I need to play World of Warcraft" and then everyone going on and making the server crash. That just doesnt happen. And definatly not instantaneously like that. So what the hell made it crash like that?
