Whipsaw
A rapid price movement in one direction followed by a sharp reversal, often triggering stop losses on both sides.
Definition
A whipsaw is a sharp price movement that quickly reverses, catching traders off guard. It often triggers stop losses for both long and short positions. Whipsaws are common during low liquidity, news events, or in ranging markets.
How It Works
- Price spikes up, triggering short stop losses
- Price immediately reverses down
- Long traders now stopped out
- Price ends near where it started
Trading Tips
1
Use wider stops in choppy markets
2
Avoid trading during major news releases
3
Wait for confirmation before entering
Related Terms
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