A whipsaw is a slang term used by traders that describes the condition of a highly volatile market where a sharp price movement is quickly followed by a sharp reversal.
Sometimes the price just jumps around without any apparent rhyme or reason. Such price action is characterized by trend line violations, false breakouts, and erratic behavior.
Whipsaw comes from the “push and pull” action of the saw that lumberjacks use when cutting wood.
A trader is considered to be “whipsawed” when in a trade and the price is moving in one direction but then unexpectedly moves in the opposite direction.
For example, if a forex trader buys EUR/USD at 1.1200, and over the course of the day the price drops to 1.1050, the trader has been whipsawed.
A whipsaw usually occurs in a choppy market. Short-term traders can be whipsawed often, but long-term traders are likely to see better results due to their long time horizon.
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