Whipsaw is a slang term used by traders to describe the condition of a highly volatile market in which sharp price movement is quickly followed by a sharp reversal. Often in a whipsaw market, the price jumps up and down with no apparent rhythm.
How do you avoid whipsaws when trading?
There’s no way to avoid whipsaws in trading, but you can minimize the impact of them by carrying out proper research of the market and historic price action. Creating a trading plan can also help ensure you respond rationally to whipsaw action.
Stop-loss orders which prevent your open positions from moving too far against you are also useful tools to protect yourself from a possible whipsaw in the market.