Up, then down, then up once more:a whipsaw: stopped out, then back as before.
A rapid price movement in one direction quickly followed by a sharp reversal, often triggering stop losses on both sides.
Whipsaws commonly occur during choppy, low-liquidity, or news-driven market conditions.
In plain words
A whipsaw is a sharp move in one direction followed almost at once by a sharp move back. A trader caught in one enters or is stopped out on the first move, only to see the price return to where it started.
See it move
Reached: Reversal
Why it matters
Whipsaws are a cost of acting on short-term moves: stop losses are triggered and breakout orders are filled just before the price reverses. They are most common in thin or directionless markets and in the minutes around major news.
Worked example
An example only. The figures are round and invented for the arithmetic: they are not market prices.
A trader buys one standard lot of EUR/USD at 1.1000 with a stop loss at 1.0980; the price drops to 1.0975 and then climbs to 1.1030 within minutes.
- 1The drop through 1.0980 triggers the stop20 pips, or 200 US dollars, if filled at its price.
- 2The price then reaches 1.1030, which is 30 pips above the entry.
- 3The position is no longer open, so that 300 US dollar move is not captured.
The trader is left with a loss of 200 US dollars on a trade whose direction turned out to be right.
A common mistake
A whipsaw is not in itself evidence that anyone aimed at a particular trader’s stop. Stops from many traders cluster at similar levels, and ordinary swings in a thin market are enough to reach them.
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Educational information, not investment advice or a recommendation to trade.