![]() ![]() When a trader goes short, the price will need to suddenly rise for it to be considered whipsaw.When a trader goes long, the price will need to suddenly fall for it to be considered whipsaw.Whipsaw in trading is characterised by a sharp and sudden reversal in the prevailing momentum shortly after a trader opens their position.Learn more about fundamental analysis Whipsaw in trading summed up Or, you could also look at other fundamental metrics like the price-to-earnings ratio when analysing stocks and companies. High supply but low demand might indicate that an asset’s price will fall, while low supply but high demand might indicate the opposite. You can also use channel indi cator s to track an asset’s volatility, with more volatile assets that are towards the top band of their historical price action being more likely to experience a reversal.Īlternatively, you could look at fundamental factors such as supply and demand in the underlying market – which is useful for assets like oil and other commodities. Popular technical indicators that can help you to identify overbought or oversold assets are Bollinger Bands, standard deviations and the exponential moving average. Since you’ll be trading with virtual funds, no real money is ever at stake when trading on a demo.īoth trading on a demo account and trading the live markets can be enhanced through carrying out your own technical and fundamental analysis – which can help you identify overbought or oversold assets. These will cap your losses if you are caught out by whipsaw.Ī good way to practise avoiding whipsaw is by using a demo trading account – a risk-free environment that you can use to trade new markets and test new strategies. You should also set stop-losses when opening positions. To avoid whipsaw in trading, research the market you want to trade, carry out analysis, and create a trading plan. If it is oversold, you might experience whipsaw when going short. When an asset is overbought, you might experience whipsaw when going long. Overbought assets could experience a sudden decline in price, while oversold assets could experience a sudden increase in price. This is hard to identify before it has happened, but there are some things that you can do.įor example, you can carry out analysis – both technical and fundamental – before you open a position to determine whether an asset is currently overbought or oversold. ![]() To identify the whipsaw effect, watch out for a sudden change in an asset’s price against the prevailing trend. ![]()
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