Those who follow Dan Sheridan will hear him constantly refer to the pregnant elephant. My understanding of a pregnant elephant is the idea that the price of the underlying will retrace after a swift unidirectional move up or down.
When I first found this forum, I hear forum members talking about price retracements as a norm, as behaviour to be expected. In other words, the pregnant elephant is not a myth, but is out there in the market, wreaking havoc to income traders who do not understand it.
I did not believe in the pregnant elephant when I started dabbing in income trades. I was busy getting myself delta neutral before giving the elephant a chance to back off. More often than not, I locked in a loss as a consequence. Over time, through experience and observation, I'm starting to be converted. I changed from a skeptic, to a believer of pregnant elephants.
Do you believe in pregnant elephants? Or is it just hogwash?