What is capitulation?
Capitulation in terms of the stock market is a scary time for many investors and traders alike that are long or bullish on any stock. Capitulation is a drastic surge of selling pressure in an already declining market (like the bear market we are in now).
Essentially, most investors have given up, assumed that the market will continue to drop, and decided to sell most of their portfolios.
Signs of Capitulation.
Generally, traders looking to short or people watching the market will look for sharp price declines with next to no pullbacks. This is accompanied by unusually high trading volume for a specific index.
This is the usual life cycle of the stock market:
What happens after Capitulation?
Capitulation usually marks a short-term low for the market and there is at least a minor rally following it. It causes investor turnover with risk-averse investors leaving the market after giving up as mentioned above and then being replaced with new investors that are more risk tolerant with their lower entry prices in the market.
Conclusion
We have yet to see capitulation in the recent terms but many traders and investors alike believe it is on the horizon. The year 2022 has been a strong bear market with some strong rallies within it as well. Be careful while trading/investing and be aware of potential upcoming events such as capitulation! Stay safe and keep learning.
Your Fellow Stock Hackers
Erwin and Cherry
What do I do with this information?
Continue to educate yourself by joining our mailing list and receive free content along the way. For those who would like to take action, we have premium (paid) products and services. With the stock market and the general economy at crossroads, it is time to get educated so that you are ready for the next opportunity and/or mitigate against the next potential dip in the stock market.
That’s all for now.
Happy trading and investing,
Your fellow Stock Hackers,
🍒Cherry & Erwin
P.S. The market dropped almost 20% between January and June this year. Many are worried it could keep going. Will the market crash? What are you supposed to do if it does crash? We unpack all of these questions in our latest FREE report, “What to do if the Market Crashes in 2022.” Download your free copy now!
