Capitulation typically follows significant downturns in price, which can take place even as many investors remain bullish. As the downturn accelerates, it reaches a point where the selling by the investors unwilling to suffer further losses snowballs, leading to a dramatic plunge in price.
The heavy trading volume accompanying the decline shakes out "weak hands"—the investors lacking conviction—and replaces them with more risk-tolerant holders who may not have suffered prior losses and were willing to buy at the end of a protracted decline capped with a dramatic drop.Traders look for unusually high trading volume accompanying sharp declines in price to signal capitulation. They try to anticipate the surest sign of a capitulation: the rebound in price that follows once the panic selling has run its course.
ADN Price at posting:
8.3¢ Sentiment: None Disclosure: Held
