A whipsaw in trading and investment management is when you enter a trend and it almost immediately reverses in the other direction, resulting in a loss.

Whipsaws are a normal part of any trend system because trends do reverse, and sometimes sooner than you expect.

In The stock market trend is being tested I said,

“The breadth thrusts we’ve seen are typical of a new uptrend — unless* it’s a prolonged bear market. *IF this is the early stage of a prolonged bear market that is likely accompanied by a recession, then we’ll see many swings like this as it unfolds along the way.”

The stock index and the most weighted sectors like technology and consumer discretionary are very close to breaking price levels that should be short-term support.

Any further decline will increase the odds the U.S. is in the early stage of a prolonged bear market, which will include many swings up and down of 10 to 20% lasting several weeks.

Such swings lead to whipsaws for many tactical traders as they enter just in time to catch the top, and/or sell just in time the trend reverses in the other direction.

I’ve tactically operated through this many times before over more than two decades, and I’ve historically shown my edge during these conditions.

I have a hunch we’re going to hear the word “whipsaw” a lot in the coming months, so let’s go ahead and kick it off with The Whipsaw Song I had fun with back in April 2008 when Ed Seykota published it.

Give it a listen!

Mike Shell is the Founder and Chief Investment Officer of Shell Capital Management, LLC, and the portfolio manager of ASYMMETRY® Managed Portfolios. Mike Shell and Shell Capital Management, LLC is a registered investment advisor focused on asymmetric risk-reward and absolute return strategies and provides investment advice and portfolio management only to clients with a signed and executed investment management agreement. The observations shared on this website are for general information only and should not be construed as investment advice to buy or sell any security. This information does not suggest in any way that any graph, chart, or formula offered can solely guide an investor as to which securities to buy or sell, or when to buy or sell them. Securities reflected are not intended to represent any client holdings or recommendations made by the firm. In the event any past specific recommendations are referred to inadvertently, a list of all recommendations made by the company within at least the prior one-year period may be furnished upon request. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities on the list. Any opinions expressed may change as subsequent conditions change. Please do not make any investment decisions based on such information, as it is not advice and is subject to change without notice. Investing involves risk, including the potential loss of principal an investor must be willing to bear. Past performance is no guarantee of future results. All information and data are deemed reliable but are not guaranteed and should be independently verified. The presence of this website on the Internet shall in no direct or indirect way raise an implication that Shell Capital Management, LLC is offering to sell or soliciting to sell advisory services to residents of any state in which the firm is not registered as an investment advisor. The views and opinions expressed in ASYMMETRY® Observations are those of the authors and do not necessarily reflect the position of Shell Capital Management, LLC. The use of this website is subject to its terms and conditions.