what is capitulation 
capitulation in finance describes the dramatic surge of selling pressure in a declining market or security that marks a mass surrender by investors the resulting dramatic drop in market prices can mark the end of a decline since those who didn t sell during a panic are unlikely to do so soon after capitulation typically follows significant downturns in price which can take place even as many investors remain bullish as the downturn accelerates it reaches a point where the selling by the investors unwilling to suffer further losses snowballs leading to a dramatic plunge in price the heavy trading volume accompanying the decline shakes out weak hands the investors lacking conviction and replaces them with more risk tolerant holders who may not have suffered prior losses and were willing to buy at the end of a protracted decline capped with a dramatic drop traders look for unusually high trading volume accompanying sharp declines in price to signal capitulation they try to anticipate the surest sign of a capitulation the rebound in price that follows once the panic selling has run its course investopedia michela buttignolunderstanding capitulationcapitulation means surrender in financial markets capitulation marks the point in time when a large enough proportion of investors simultaneously give up hopes of recouping recent losses typically as the decline in prices gathers speed suppose a stock you own dropped by 30 but you were sure it would bounce back imagine it then fell another 20 but it was clear the fundamentals were solid maybe you bought a little more on the dip now imagine the same stock is down 15 intraday and the grind of daily disappointment has given way to certain knowledge that you bought a loser that could go even lower selling the stock as a result would be an act of capitulation investors can only identify capitulations with certainty after they have occurred and the price has rebounded note that the stock was already down 15 in a day suggesting others felt the same while misery may like company a capitulation requires a panicked crowd capitulation does not mean the sellers were wrong or the buyers right while a short term rebound follows capitulation by definition it doesn t mean prices can t go even lower later if future reverses turn the new strong hands into sellers bear markets can feature repeat high volume plunges in price and premature calls of capitulation the truth is that the condition can be diagnosed conclusively only in hindsight if the price rebounds using technical analysis to identify capitulationscapitulations often signal major turning points in the price action of underlying securities and financial instruments technical analysts use candlestick charts to identify capitulation patterns one such pattern is the hammer candle which marks a trading session in which the price drops well below its opening level but reverses to regain much of the loss by the close when accompanied by heavy volume it suggests the decline reached a climax conversely a shooting star candle describing a session in which price rallies sharply but then reverses to close near opening level often forms at the end of a buying spree indicating a top is in place example of capitulationwhile capitulations can be hard to tell apart from run of the mill high volume declines as they happen they re easy to spot with the benefit of hindsight just look for a significant rebound in the price an interesting example of capitulation occurred with the price of tesla tsla after reaching its all time high of 414 on oct 31 2021 over the next fifteen months the stock alternated between sharp drops and brief rebounds by the opening of 2023 tsla had reached a low of 101 a loss of more than three quarters 1however the stock rebounded just as quickly reaching 208 over the next six weeks with daily volume at one point exceeding 1 billion in retrospect the final price drop represented a period of capitulation as speculators accepted their losses and new investors assumed their positions 