Since most stock markets are at or near the all-time high, I thought this might be a good time to talk about market capitulation և why you should be aware of this phenomenon. It is understandable that considerable effort is required to properly detect and trade a capitulation that may occur at the highest levels of all time or with strong resistance that cannot be broken. The simple definition of a capitulation is when long positions are abandoned, there is a period of large sales, when traders panic, they want to leave their positions to avoid losses or profits. A simpler explanation would include the term panic sale.
One way to detect capitulation is to look at volume, as opposed to a normal downward movement. Capitulation is gaining momentum as panicked sales take over the minds of confused traders. The volume will increase, քի the momentum of panic sales will increase as the level of fear increases. I think the word fear can be mentioned. Capitulation is directly related to fear, և that fear can last for a long time as frightened investors leave their positions.
Volume can be used to detect this market move, you will notice a much higher volume than usual. Of course, the volume levels can be absolutely massive. Newer traders, especially those who started in 2007-2009. After the market crash, they will see huge volumes comparing their trading volumes over the last 7 years.
I can vividly remember the fall of the 1987 market. Although I’ve been trading for a few years, my experience has been with a fast growing market. We thought the sky was the limit; we had no attempt to move seriously in the wrong direction. I can also remember the speed and breadth of sales. I have never seen volumetric numbers reach a level that created a rapid transition to decline. Frankly, it was scary. I had the typical mindset of a novice salesperson. In my early years, I thought the market was heading for the moon. As the downturn gained momentum, I was confident that the stock market would reach zero.
In 1987, most of the sales were accused of trading in programs, and the NYSE’s other exchanges took steps to control the impact of those programs. Called switches, companies are forced to stop trading their software in the hope that the market will regulate. With a few steps to capitulate, my general opinion is that the switches are panicking traders.
I doubt we will see a surrender in the future as this market emerges and the uptrend begins to deteriorate. Properly covered, it will withstand a great deal of adverse conditions. As always, good luck with your business!