Whipsaw

Podcast Duration: 05:20

Hello friends. Angel Broking ke is podcast mein aapka swagat hai.

Doston, have you ever come across a stock or a security jiske prices constant upward move par hain, and then the prices fall down hard and fast. Sounds strange? You bet it does. Lekin markets mein aise occurrences frequently dekhne ko milte hain - and behind them are various factors at play. Expert investors account for these factors before investing in something.

Friends, aaj ke podcast mein, we are looking at something that’s called whipsaw.

Sounds like a carpentry term? It actually is.

Listen to this cool anecdote from one of my meetups a few days ago.

Mere aur Kaustavi ke ek mutual friend ne ek stock mein invest kiya tha, which had been bullish since the last couple of weeks.

Market mein sabhi log baat kar rahe the, about how they had hit a fortune - but then, the prices began to fall. But here is the more interesting part. Prices sirf fall nahi hue - they rallied down, like an iron ball dropping from the sky.

Kaustavi said “You just got whipsawed, brother. My condolences.” And then all of them started laughing. While he had diversified well enough to take that as a joke, a whipsaw can actually leave investors whipsawed, or at least their wealth.

Sounds confusing? Whipsaw actually comes from carpentry. Do you know how lumberjacks cut wood, by making long pushes and pulls on a piece of wood with a saw? Is action ko bolte hain whipsaw, and that’s exactly where whipsaw derives its meaning in the context of stock markets.

So when an investor invests in a security and uski price suddenly aur abruptly opposite direction mein move hoti hai - suddenly, and abruptly - toh is movement ko whipsaw bolte hain.

Sounds cool? Well, maybe not so much, if you or someone you know have been ‘whipsawed’ in the past.

In fact, the word itself is very common. If you google stocks whipsaw, aap is phrase ko kai headlines mein dekhoge. But beyond words, what do you think is actually happening behind the scenes? Or shall I say - behind the graphs?

Basically whipsaw speaks of an abrupt price movement, jiska matlab ye, ki this movement is not expected. So, if we talk about a short-seller, they can get whipsawed when they enter a position at the bottom of a market.

On the other hand, agar koi long position enter karta hai, at the peak of a security’s price only to see prices rallying down afterwards, they have been whipsawed too.

Financial Times published a news report this february, jisme they pointed to how US stocks whipsawed due to the coronavirus pandemic. Wahin 1 mahine pehle, Wall street journal ne report kiya tha, ki S&P 500 is touching new heights.

This is a classic example of a whipsaw. Jahan markets bullish the aur peaks touch kar rahe the, wahin ek-do hafte ke andar, they had touched a record low.

Isko sunkar aap whipsaw ka matlab better samajh paaye ki nahi?

Basically, whipsaw isn’t a pattern, aur iske underlying causes can be very different. In the example we were talking about just now, the pandemic was the ultimate cause, because of which companies were failing to stay profitable.

Whipsaws usually volatile markets mein dekhne ko milte hain, jisme price fluctuations are unpredictable.

So can you get whipsawed too? Agar aap long-term investments karte ho, toh you probably know that aap temporary lows se unaffected reh sakte ho, by staying invested in the long run - the stocks recover, and the price floors become a thing of the past.

Lekin short term aur intraday traders are very used to getting whipsawed.

So essentially, whipsaw refers to any price movement, jo kisi trade ya bet ke opposite direction mein dekhne ko milta hai.

Okay, so how to avoid getting whipsawed?

Doston, ye answer ita easy nahi hai, aur ye isliye, kyunki different situations will require different reactions. Kisi situation mein whipsaw hone ke baad making a profitable exit might not be possible. In such a situation, apne losses ko minimize karke exit karna is the wisest.

In another situation, analysts aapko recommend kar sakte hain, ki you should wait out this market bottom.

While situation specific advice has its own place, some of the golden rules continue to hold -

For example, a whipsaw might affect only one security or industry in particular. Ab pandemic ke context mein hi dekh lijiye - people who invested heavily in aviation and hospitality stocks had to catch some big losses. Lekin healthcare jaisi historically stable industries zyada affect nahi hui, aur in fact, healthcare mein kaafi growth bhi dekhne ko mili.

Making your way out of a whipsaw is complicated, and requires expertise and experience. But don’t let this intimidate you. After all, securities and markets have crashed in history too. Lekin on the bright side, they not only recovered, they also touched new heights.

Achche investors markets ke baare mein knowledge aur news ko kabhi ignore nahi karte, because expertise doesn’t come without learning.

Doston, that’s all we had in today’s podcast, lekin why let the learning stop? Check out our other podcasts, or learn more about markets on our website www.angelbroking.com

Tab tak ke liye, alvida. See you in the next podcast!