Capitulation

Loading the player...

DEFINITION of 'Capitulation'

When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into less risky investments. True capitulation involves extremely high volume and sharp declines. It usually is indicated by panic selling.

The term is a derived from a military term which refers to surrender.

BREAKING DOWN 'Capitulation'

After capitulation selling, it is thought that there are great bargains to be had. The belief is that everyone who wants to get out of a stock, for any reason (including forced selling due to margin calls), has sold. The price should then, theoretically, reverse or bounce off the lows. In other words, some investors believe that true capitulation is the sign of a bottom.

RELATED TERMS
  1. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, ...
  2. Correction

    A reverse movement, usually negative, of at least 10% in a stock, ...
  3. Flight To Quality

    The action of investors moving their capital away from riskier ...
  4. Falling Knife

    A slang phrase for a security or industry in which the current ...
  5. Bear Market

    A market condition in which the prices of securities are falling, ...
  6. Bloodletting

    A period marked by severe investing losses. Bloodletting may ...
Related Articles
  1. Term

    What Is Capitulation?

    Capitulation occurs when investors sell equity positions as quickly as possible.
  2. Bonds & Fixed Income

    War's Influence On Wall Street

    Blitzkrieg? Dawn raids? Sounds like the markets and the battlefield have a few things in common.
  3. Active Trading

    Connecting Crashes, Corrections And Capitulation

    Even though crashes, corrections and capitulations are bad news for investors holding the stock, there are still ways to profit.
  4. Economics

    Sympathy Sell-Off: An Investor's Guide

    Find out how to tell whether your stock is a bargain or a bank breaker.
  5. Economics

    Understanding the American Dream

    The American dream is the belief that anyone, regardless of where they’re born or into what class, can attain their own version of success.
  6. Term

    Three Ways to Profit Using Call Options

    A call option gives an investor the right, but not the obligation, to buy a stock at a specific price, known as the strike price.
  7. Term

    Understanding Rational Choice Theory

    Rational choice theory assumes an individual will always make prudent and logical decisions that yield the most benefits.
  8. Active Trading Fundamentals

    New Traders: Trade the Market in 5 Steps

    New traders shouldn’t throw money at securities without knowing why prices move. Follow these five steps to tilt the odds in your favor.
  9. Investing Basics

    The January Barometer: Is it Still Relevant?

    The January Barometer has been historically accurate. Will that be the case in 2016?
  10. Investing News

    Will China Slip Into a Recession?

    The Chinese economy is an entanglement of many factors gone wrong: an overvalued, engineered stock market, slow GDP growth and a devalued currency. What happens next and what will be the global ...
RELATED FAQS
  1. If everyone is selling in a bear market, does your broker have to buy your shares ...

    A broker won't lose money when a stock goes down because he or she is usually nothing more than an agent acting on sellers' ... Read Full Answer >>
  2. How do mutual funds split?

    Mutual funds split in the same way that individual stocks split, but less often. Like a stock split, mutual fund splits do ... Read Full Answer >>
  3. How does days to cover a short position relate to a short squeeze?

    Days to cover a short position reveals the intensity and duration of a potential short squeeze. A short squeeze occurs when ... Read Full Answer >>
  4. Is it better practice to use a stop order or a limit order?

    Both stop orders and limit orders have their advantages and disadvantages; traders need to decide between the two based on ... Read Full Answer >>
  5. What is the difference between a buy limit and a sell stop order?

    A buy limit order is a specific type of buy order used to enter a market, while a sell-stop order is a sell order that can ... Read Full Answer >>
  6. What is the difference between a short squeeze and a long squeeze?

    A short squeeze and a long squeeze are situations that can force traders and investors out of their positions. A short squeeze ... Read Full Answer >>
Hot Definitions
  1. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  2. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  3. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  4. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  5. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
Trading Center