Whipsaw Definition. A Whipsaw is a slang expression for describing a highly volatile market condition where a sharp price movement is quickly followed by a sharp price reversal. The term is often used in the context of a trader being “whipsawed” by the market, resulting is a loss due to his inability to react quick enough to adverse market changes. The origin of the term relates to the particular saw that lumberjacks would often use to cut logs in unison and the manner of cutting involving quick back and forth movements. Whipsaw patterns can occur in two ways. In the first way, a forex trader assumes an initial position and is then greeted by an upward movement in price, followed by a greater downward thrust below his initial entry point. The second scenario is the reverse of the former, actually resulting in a positive gain. However, forex traders rarely complain about the second type for obvious reasons.
Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.