Whipsaw occurs when the market does the opposite of what is expected. When you make a trading decision based on an expectation of the path of future prices, only to have the opposite occur you have been “whipsawed”. Whipsawing is a fact of trading and in many cases can create painful draw downs of your trading account. In Trend Following trading strategies whipsawing often occurs at the top of of uptrend and the bottom of a downtrend. This can often happen to stocks that are very volitile. False signals occur before the trend resumes. While these circumstatances are painful, a true trend follower will stick to the system and ride out the drawdown. In this example of KIRK 07 and 08 created a 50% drawdown on the long only signal, but sticking to the stock provided a very generous return.
Jesse Webb
Market Trend Signal™
Trend Following – Stock Ratings – Market Timing
