What does capitulation mean?

By Research Desk
about 3 years ago

When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into less risky investments, it is described as capitulation. True capitulation involves extremely high volume and sharp declines. It usually is indicated by panic selling.

The term is a derived from a military term which refers to surrender.

After capitulation selling, it is thought that there are great bargains to be had. The belief is that everyone who wants to get out of a stock, for any reason (including forced selling due to margin calls), has sold. The price should then, theoretically, reverse or bounce off the lows. In other words, some investors believe that true capitulation is the sign of a bottom.

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