Whipsaw
Definition
A whipsaw is a signal that fires, reverses almost at once, and leaves the trader with a small loss, often several times in a row.
Detailed Explanation
Whipsaws come from trading a trend rule in a market with no trend. A moving average crossover is the classic example: in a sideways market the two lines keep crossing, and each cross is a fresh entry that loses a little plus costs. One whipsaw is cheap. Five in a morning aren't, because commissions, spread and slippage are paid every time. The usual fix isn't a smarter indicator. It's a filter that keeps you out of choppy conditions, such as requiring a rising longer moving average or a clear run of higher highs and higher lows.
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