What is capitulation?
- Author
- CRYPTO PORT Editorial
- Published
- Updated
- Reading time
- 4 min
In short
Capitulation describes holders giving up and selling out during a decline, typically pictured as a sharp fall on a burst of volume. There is no precise criterion for it, and the label is applied in hindsight. It is not a marker of a bottom.
Key points
- Holders giving up and selling into a decline
- Pictured as a sharp fall on surging volume
- No numeric criterion defines it
- It does not mark a bottom
Definition
A market term for participants who had been holding through a decline giving up en masse and selling at a loss. The word comes from the language of surrender.
The classic picture is a long decline followed by a short, steep drop on a spike in volume, as participants holding losses finally sell and push the price down further. In leveraged markets, cascading forced liquidations can produce the same shape.
But no criterion says where capitulation begins. There is no volume multiple and no percentage decline that qualifies, so analysts disagree. In practice the word functions as after-the-fact description.
It is often said that capitulation means a bottom is near. That relationship has not been verified, and sequences of similar sharp drops do occur one after another. Whether selling is exhausted is unknowable at the time. The term is best understood as vocabulary for describing what happened.
Watch out for
- · Moves labelled capitulation have often been followed by further decline
- · The word being used is no evidence that a bottom was reached
- · Books thin out during sharp falls, so fills come in worse than expected