A Sell-off is a situation in which many traders suddenly sell their holdings, usually (but not always) due to bad or unexpected news.
It has been described as a brief period of intense selling triggered by a price drop.
Selling, also known as “dumping“, occurs because traders usually try to dispose of their holdings as quickly as possible rather than trading like normal.
Surge in sales led to even greater price drops.
The unexpected has been and will always be a key factor in sell-offs.
Unexpected situations like these can be difficult to predict, but it’s crucial to know how to handle them when they happen.
How the sell-off works
Sales occur based on the principles of supply and demand.
If a large number of traders decide to sell their holdings without a corresponding increase in buyers, the price will fall.
In this case supply exceeds demand.
The sell-off reflects market psychology.
For example, if AUD/USD sells off after an unexpected dovish statement from the Reserve Bank of Australia (RBA), this means that FX traders who were long AUD/USD decided to close their positions as soon as possible. Their bullish view on the Australian dollar has now been shattered.
For contrarian traders, selling can provide the opportunity to buy low. If traders believe the sell-off is an irrational or extreme reaction, they may jump at the opportunity to buy at a “bargain” price.
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