Which of the following statements is true about abnormal trading events in relation to the law of averages?

The chosen answer highlights that abnormal trading events, while they may stand out in certain contexts, are usually overshadowed by more typical values when considering a large enough sample size. The law of averages suggests that in a sufficiently extensive dataset, the effects of extreme or anomalous events tend to diminish, as the overall average is more reflective of the common outcomes.

In practical terms, while an abnormal trading event might draw immediate attention or provoke emotional reactions among traders, its influence on the long-term averages is often negligible because the vast majority of trades will center around more typical values. Therefore, in the aggregation of data, these anomalies do not consistently alter the expected outcomes or averages significantly.

This understanding is crucial for traders and investors because it reinforces the importance of relying on broader trends and averages rather than reacting impulsively to outlier events that could misrepresent the market’s longer-term direction.