Whipsaw

Whipsaw refers to sharp, violent price movements that quickly reverse direction, often triggering stops on both sides of the market. These movements are particularly frustrating for traders as they can result in losses despite eventually being right about direction. Whipsaws are common during low liquidity, around major news events, or when markets are indecisive. They often occur at key technical levels where stops accumulate. Traders minimize whipsaw damage by using wider stops, waiting for confirmation, avoiding trading during uncertain periods, and using time stops. Understanding market conditions prone to whipsaws helps preserve capital.