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Whipsaw

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Whipsaw refers to the rapid movement of stock prices, either up or down, in a volatile market. In other words, when a share price moves in one direction but abruptly reverses, it is known as a whipsaw. Some investors jump on the stock before it has reversed and caused the whipsaw. Thus a whipsaw can cause an investor to lose money. The investor loses money from a whipsaw by buying a stock right before the price falls or by selling a stock just before the price rises. Whipsaw is therefore related to "chasing the market," when an investor seems to lag behind the market. A whipsaw is dangerous to traders because it throws up an initially misleading signal to buy or sell. Because of the whipsaw condition, a volatile market can punish active traders.



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