ForexEzy
No Result
View All Result
  • Top Forex Advisors
    • Best Forex Robots
    • Best Forex Signals
    • Best Managed Accounts
  • Top Forex Brokers
    • Best Forex Brokers
    • US Forex Brokers
    • UK Forex Brokers
    • MT4 Forex Brokers
    • MT5 Forex Brokers
    • Zero Spread Brokers
    • Best PayPal Brokers
    • TradingView Brokers
    • Social Trading Platforms
  • Top Review Platforms
  • Forex Education
    • Getting Started
    • Forex Basics
    • Forex Trading Strategies
    • Money Management
    • Risk Management
    • Technical Analysis
    • Fundamental Analysis
    • Trading Psychology
    • Social Trading
    • Automated Trading
  • Forex Tools
    • Forex Robots
    • Forex Indicators
    • Forex Signals
    • Forex VPS
  • Forex Forecast
  • Crypto
    • Best Crypto Exchanges
    • Best Crypto Bots
    • Crypto Guides & Forecasts
  • Top Forex Advisors
    • Best Forex Robots
    • Best Forex Signals
    • Best Managed Accounts
  • Top Forex Brokers
    • Best Forex Brokers
    • US Forex Brokers
    • UK Forex Brokers
    • MT4 Forex Brokers
    • MT5 Forex Brokers
    • Zero Spread Brokers
    • Best PayPal Brokers
    • TradingView Brokers
    • Social Trading Platforms
  • Top Review Platforms
  • Forex Education
    • Getting Started
    • Forex Basics
    • Forex Trading Strategies
    • Money Management
    • Risk Management
    • Technical Analysis
    • Fundamental Analysis
    • Trading Psychology
    • Social Trading
    • Automated Trading
  • Forex Tools
    • Forex Robots
    • Forex Indicators
    • Forex Signals
    • Forex VPS
  • Forex Forecast
  • Crypto
    • Best Crypto Exchanges
    • Best Crypto Bots
    • Crypto Guides & Forecasts
No Result
View All Result
ForexEzy
No Result
View All Result
The World’s Leading Social Trading Platform
Try now
Home Forex Education Forex Basics

Whipsaws in Forex Trading

by Chintan Patel
February 10, 2022
in Forex Basics
0
Whipsaws in Forex Trading
0
SHARES
11
VIEWS
Share on FacebookShare on Twitter

Whipsaw is a common market phenomenon that could often lead to substantial losses or profits to a trader. In this article, we will look at what whipsaw is and some of the best strategies to use when it happens.

The Best Forex Robots Report Is Already Here!
best forex robots
Check out 30+ best expert advisors with daily updated live results and statistics
Click Here

What is a whipsaw in trading?

A whipsaw is defined as a period when a currency pair or any other asset experiences a sharp bullish or bearish movement out of nowhere. For example, assume that a currency pair has been trading at a range of between 1.1210 and 1.1250 for a while. Now, if the pair suddenly declines to 1.1100, that is considered to be a whipsaw situation. 

The name whipsaw comes from how a real whipsaw looks like. It is a saw with a narrow blade that has handles on both sides. In the lumber industry, the whipsaw is used by two people, who move it up and down to produce timber. 

In trading, a whipsaw is a sudden thing that is hard to predict. At times, depending on your positioning, a whipsaw can lead to a substantial loss or a profit. In the example above, if you had a sell trade on the currency pair, then you will make a profit when it happens. 

The chart below shows a good example of a whipsaw on the USDTRY pair. The chart shows that the USDTRY was moving in a bullish trend in December 2021. Indeed, between December 1 and December 20th, the currency pair was in a strong bullish trend. It had jumped by about 47%. 

Therefore, during this trend, there is a likelihood that many people were bullish on the pair. Besides, in theory, a currency pair in an upward trend tends to keep rising for a while.

USDTRY whipsaw

As shown, on December 20th, the currency pair suffered a harsh reversal or whipsaw that pushed it lower by over 40% within a few days. This reversal is also known as a whipsaw.

Causes of whipsaws in forex

There are many causes of whipsaws in forex and in this article, we will look at a few of them. 

Monetary and fiscal statements

First, a currency pair may experience a whipsaw after a statement or speech by an important policymaker. 

Policymakers are typically divided into two: monetary and fiscal. Monetary policymakers are officials of central banks like the Federal Reserve and the European Central Bank (ECB). Fiscal policymakers are members of government institutions like a president or a minister.

A statement by a central bank official like a governor can lead to a major whipsaw in the market. For example, in March 2020, during the onset of the pandemic, the EURUSD pair jumped sharply in a single day after the Federal Reserve unveiled its open-ended quantitative easing (QE) policy. In many cases, a currency pair will experience a whipsaw after a speech or action by central bank officials.

Economic data

Currency pairs are highly reactive to key economic data. These numbers provide a gauge of the performance of the economy and what the central bank will do. Some of the most important numbers that have an impact on currency pairs are jobs, inflation, manufacturing production, consumer confidence, and retail sales. 

Geopolitical news

Another leading cause of whipsaws in forex relates to geopolitics. Some of the best-known geopolitical events that led to whipsaws in forex are the trade war between the United States and China, Brexit, the trade conflict between China and Australia, and the North Korean missile program. 

In most cases, rising global tensions tend to boost the performance of the US dollar, which is seen as a safe haven, when there are signs that these tensions are easing, the US dollar retreats.

Political events

Elections and referendums have consequences for economies. For example, the Brexit referendum led to whipsaws in currency pairs that had the British pound. Similarly, the 2016 election of Donald Trump had impacts on currencies with the greenback.

There are other causes of whipsaws in the market, like the performance of the bond market and technical reasons.

How to trade whipsaws in forex

Whipsaws pose a major threat in the forex market because they are difficult to predict in many cases. Therefore, traders take advantage of whipsaws after they have happened.

Often, there are three key scenarios that come after a whipsaw happens. First, the currency pair could continue moving in the direction of the whipsaw. If the pair rose, it could continue moving in that trend.

Second, the currency pair could have a reversal and start moving in the original trend’s direction. Finally, it could consolidate for a while as traders assess the situation.

The first thing you need to do when trading in these conditions is to understand the cause of the whipsaw. It could be one of the reasons mentioned above or another one. Having a good understanding of this will help you understand whether the currency pair will continue moving in the original trend or reverse.

Second, you could make money by scalping. Often, a whipsaw will be followed by some volatility. Therefore, you can open a series of trades and exit with small profits.

Finally, you could wait for some price action patterns to form. For example, in the case of a bullish whipsaw, you could wait and see whether a bullish flag or pennant pattern will form. If it forms, it is a signal that the bullish trend will continue.

Summary

In this article, we have looked at what a whipsaw in forex is and some of the best practices to trade these conditions. Still, since whipsaws are highly unpredictable, the most important thing is to avoid being caught up in one. You can achieve this by moderating the size of leverage you are using and always having a stop-loss and a take-profit for all your trades.

The Best Forex Robots Report Is Already Here!
best forex robots
Check out 30+ best expert advisors with daily updated live results and statistics
Click Here
ShareTweet
Previous Post

Lydia Finance Decentralized Exchange Review

Next Post

Unicly Decentralized Exchange Review

Related Posts

Short Selling and Strategies to Use

by Richard Brase
September 21, 2022
0

Are you interested in short selling? This can be a great way to make money if you are savvy and...

Scalping in Forex Trading

by Richard Brase
September 9, 2022
0

Heading in Forex is a trading approach that looks to make a tiny profit on each trade to compound those...

Pullbacks vs Reversals In Forex: How To Differentiate Between The Two?

Pullbacks vs Reversals In Forex: How To Differentiate Between The Two?

by Chintan Patel
June 7, 2022
0

Overview Have you ever closed your positions in fear of a sustained pullback, only to see the market eventually move...

Best 5 Leverage Calculators Use Can Use for Free

Best 5 Leverage Calculators Use Can Use for Free

by Chintan Patel
May 30, 2022
0

Leverage is an important concept in forex and stocks trading. It refers to the amount of money that a broker...

KeyDifferences Between the Simple and Exponential Moving Averages

KeyDifferences Between the Simple and Exponential Moving Averages

by Chintan Patel
April 18, 2022
0

Moving Averages (MAs) are often the first indicator introduced to a newbie in any financial market. They remain the bread-and-butter...

Load More

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Best Forex Automated Systems

  • TechBerry 9/10
  • Happy Galaxy 8.5/10
  • Forex Cyborg 8.5/10
  • Forex Fury 8/10
  • FXgoodway 7.5/10
  • Best Forex Brokers
  • Best Forex Robots
  • Best Forex Signals
  • Best Forex Managed Accounts

Top Trading Markets

We are dedicated to demystify the world of forex trading for you – no matter what level you are on.

Categories
  • Automated Trading
  • Crypto Robot Review
  • Cryptocurrency Trading
  • Day Trading
  • Forex Basics
  • Forex Brokers
  • Forex Education
  • Forex Forecasts
  • Forex Indicators
  • Forex Market Commentary
  • Forex Robots
  • Forex Signals
  • Forex Signals
  • Forex Tools
  • Forex Trading Strategies
  • Forex VPS
  • Fundamental Analysis
  • Managed Accounts
  • Money Management
  • News
  • Review
  • Review Platforms
  • Risk Management
  • Social Trading
  • Technical Analysis
  • Top World Traders
  • Trading Apps
  • Trading Psychology
  • Uncategorized
Tags
Acquisition AI Amazon Apple Artificial Intelligence Bitcoin bond yields CEO China earnings earnings report economy Electric Vehicles Federal Reserve financial performance Financial Results forex ea forex software reviews Growth Guidance Housing Market inflation interest rates Investing investment Investors Market Volatility merger mortgage rates net profit Nvidia Oil prices Q2 Results revenue Revenue Growth Sales sales growth Stock Futures stock market stock performance Stocks strategies technology Tesla Video
  • Terms of Use
  • Privacy Policy
  • Compensation Disclosure
  • Risk Disclosure
  • About Us
  • Contact Us

Copyright © 2023 by ForexEzy.com

No Result
View All Result
  • Top Forex Advisors
    • Best Forex Robots
    • Best Forex Signals
    • Best Managed Accounts
  • Top Forex Brokers
    • Best Forex Brokers
    • US Forex Brokers
    • UK Forex Brokers
    • MT4 Forex Brokers
    • MT5 Forex Brokers
    • Zero Spread Brokers
    • Best PayPal Brokers
    • TradingView Brokers
    • Social Trading Platforms
  • Top Review Platforms
  • Forex Education
    • Getting Started
    • Forex Basics
    • Forex Trading Strategies
    • Money Management
    • Risk Management
    • Technical Analysis
    • Fundamental Analysis
    • Trading Psychology
    • Social Trading
    • Automated Trading
  • Forex Tools
    • Forex Robots
    • Forex Indicators
    • Forex Signals
    • Forex VPS
  • Forex Forecast
  • Crypto
    • Best Crypto Exchanges
    • Best Crypto Bots
    • Crypto Guides & Forecasts

© 2023, Forexezy. {copy} {year}