Capitulation

What is Capitulation?

Capitulation in its essence means to give up.

When it comes to finance, it is a term that is used to refer to the time when investors have decided to let go or surrender trying to gain the lost due to falling stock prices.

Capitulation Trading

When an investor’s stock falls drastically, there are two options to take up. One is to wait until the stock’s price rises or sell the stock. When it comes to stocks, the prices largely depend on the investor behaviour. If a majority of the investors is waiting for the price to rise, it may impact the stock positively. However, if they decide to give up and sell the stock, a significant price fall will be noticed. This largely affects the financial Market, which is commonly known as capitulation.

However, there is another side of the same coin. When the majority of the investors is selling the stock due to falling prices, the buyers of those stocks are in for a treat. This is because they now get to have the same stock for a low price. This phenomenon can directly affect the demand of the stock and raise the price of the same. Panic buying plays a huge role in driving stock prices.

Capitulation is not easy to identify or forecast. It happens due to a variety of reasons like market Recession, etc. It is important to keep an eye to be able to gauge the falling prices if you desire to profit from it.