PostHeaderIcon Understanding Panic Selling

Panic Selling Panic selling refers to the sudden massive sell off of investments triggered by panic in the market. Some investors may resort to panic selling with little regard for profits if they see a certain negative indicators that may bring down the market even further. But the actual effect of panic selling would even worsen an already dismal market situation. It can sometimes be uncalled for since most instances of panic selling come about as a result of fear and as an emotional reaction rather than careful assessment and evaluation.

Panic Selling Triggers

One of the main triggers of panic selling in markets is brought about by sudden changes and prices and volumes. When a stock rapidly declines on high volume, it can lead investors to sell off their own investments suddenly to prevent further losses. Such events in turn can be triggered by certain forces in the market that can lead investors to look more closely into the intrinsic value of their investments.

Panic selling can also be brought about by short term traders being able to drive down prices far enough to trigger panic selling. Such events can also create many opportunities for other traders to take advantage of the sudden price drop to establish long positions.

Panic Selling Phases

A panic selling event can be broken down into several phases. The first phase includes a certain event that would cause the price of a stock to drop rapidly. The event may be a sudden investigation called by SEC on a certain company or a company’s worse-than-expected financial report. It can be some other event that can be serious enough to cause stock prices to drop rapidly.

During the phase two of a panic selling event, investors may see a high volume day wherein there is battle for control between buyers and sellers. This can sometimes be followed by a sudden low follow-up volume. If there is no significant change in the trend at this point, it is usually followed by another point of high volume trading followed by a sharp reversal which happens at phase three. Phase four usually brings a continual down trend that seems to taper out until the actual events are being confirmed and established by technical and fundamental factors that bring a lull into the decline.

A panic selling event may prove disastrous to those investors who fall victim to its effects. But for some investors, it can also be a great buying opportunity. Since panic selling is followed by sudden drop in stock prices, opportunities to buy low become readily available. But the decision to do so might not be as easy as expected. A panic selling event may be brought about by news of bankruptcy or a failing business which in this case, stock buying may not be a wise thing to do.

But there are cases where panic selling is brought about solely as an emotional reaction towards a certain event that prove to be unfounded. It can bring stock prices down up to a certain point which offers some investors many opportunities to buy low. But such circumstances would require careful evaluation and assessment to make sure if such price drops prove to be just a temporary event.


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