Definition
A shakeout is a sudden wide downward move, often on increased volume, that quickly recovers and closes well off the low. It removes weak holders and tests or absorbs remaining supply.
Market psychology
Fear and stop orders create sell-side liquidity while stronger interests absorb shares or contracts. Recovery reveals that lower prices were rejected.
Recognition rules
- A fast break below a visible low or support area
- Wide spread and a pronounced lower rejection
- Close well off the low
- Demand or successful testing follows
Common mistakes
- Assuming every large down bar is bullish
- Ignoring a weak close and continued markdown
Teaching example
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Read a text alternative
The market rejects prices below support. Re-entry into the range and bullish follow-through distinguish this spring from a genuine breakdown.
- Market phase
- Accumulation
- Pattern
- Spring
- Timeframe
- D1
What distinguishes a shakeout from ordinary weakness?
The recovery shows rejection and potential absorption of forced selling.