A situation in which a security's price moves sharply in one direction and then quickly reverses, often triggering stop losses on both sides of the market in rapid succession. Whipsaws are particularly common in choppy, range-bound, or low-liquidity markets and around major news releases where initial reactions are often reversed. Traders guard against whipsaws by using wider stop losses, waiting for confirmation before entering trades, or avoiding trading during high-uncertainty events.
Example
“The non-farm payrolls release caused a whipsaw in EUR/USD, with the pair spiking 50 pips higher on the initial print before reversing 80 pips lower within five minutes.”