DEFINITION of 'Whipsaw'

A condition where a security's price heads in one direction, but then is followed quickly by a movement in the opposite direction. The origins of term is derived from the push and pull action used by lumberjacks to cut wood with a type of saw with the same name.


There are two types of whipsaw patterns. The first involves an upward movement in the share price, which is then followed by a drastic downward move, which causes the share's price to fall relative to its original position. The second type involves the share price to drop for a little while, and then suddenly, the price abruptly surges towards positive gains relative to the stock's original position.

  1. McGinley Dynamic Indicator

    A little known technical indicator developed by John McGinley ...
  2. Trend

    The general direction of a market or of the price of an asset. ...
  3. Rally

    A period of sustained increases in the prices of stocks, bonds ...
  4. Volatility

    1. A statistical measure of the dispersion of returns for a given ...
  5. Reversal

    A change in the direction of a price trend. On a price chart, ...
  6. Crash

    A sudden and significant decline in the value of a market. A ...
Related Articles
  1. Fundamental Analysis

    Where's The Market Headed Now?

    Whether up, down or sideways, learn about some of the factors that drive stock market moves.
  2. Investing

    Tips For Investors In Volatile Markets

    Find out what to look out for when trading during market instability.
  3. Mutual Funds & ETFs

    Understanding Volatility Measurements

    How do you choose a fund with an optimal risk-reward combination? We teach you about standard deviation, beta and more!
  4. Investing

    Turnaround Stocks: U-Turn To High Returns

    Find out which catalysts can turn struggling stocks around to create a tidy profit.
  5. Active Trading

    Do Adaptive Moving Averages Lead To Better Results?

    These complex indicators can help traders interpret trend changes, but are they too good to be true?
  6. Investing Basics

    5 Common Misconceptions About Dividends

    Here are five common misconceptions about dividends that are important to know.
  7. Term

    What's a Sector?

    The term sector has several applications in economics and finance.
  8. Term

    What's a Return of Capital?

    A return of capital is an investment return that is not considered income.
  9. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  10. Fundamental Analysis

    Value Investing Strategies in a Volatile Market

    Volatile markets are a scary time for uneducated investors, but value investors use volatile periods as an opportunity to buy stocks at a discount.
  1. What is a common strategy traders implement when using the Vortex Indicator (VI)?

    Traders primarily use the vortex indicator to spot trends, gauge trend strength and spot exit / entry points. The trading ... Read Full Answer >>
  2. What are the best technical indicators to complement the Parabolic Indicator?

    The best technical indicators to complement the parabolic stop and reverse indicator are the average directional index (ADX) ... Read Full Answer >>
  3. Why is the McGinley Dynamic Indicator important for traders and analysts?

    John McGinley developed the McGinley dynamic indicator to solve an important problem with moving average indicators – their ... Read Full Answer >>
  4. How do I use McGinley Dynamic Indicator to create a forex trading strategy?

    Forex traders can use the McGinley dynamic indicator much like they would use a moving average indicator – to identify trends ... Read Full Answer >>
  5. Why is the Parabolic Indicator important for traders and analysts?

    Another creation from famous technical innovator J. Welles Wilder Jr., the parabolic indicator signals exit and entry points ... Read Full Answer >>
  6. What are the best ways to protect trade positions against false signals?

    False signals are generated whenever an indicator provides an inaccurate reflection of market sentiment. Sometimes false ... Read Full Answer >>
  7. What burst the Mississippi bubble?

    In 1715, France was essentially insolvent as a nation. Even though taxes were raised to extremely high levels, the hole ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Purchasing Power

    The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Purchasing ...
  2. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges ...
  3. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  4. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  5. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  6. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!