Skip to main content

liquidation break

A sudden selloff in the market that has the following characteristics:

-Often happens very early or late in the day
-Comes out of a pattern that doesn’t suggest such a break should occur
-Has no definitive catalyst or news that drives it
-Has much faster tempo than the one that has already been established
-Is often short-lived and will retrace 100% soon after or the next day

A liquidation break happens when short term traders get overly long and all panic out at once. It is different from a stronger, more lasting correction in that there are usually only very short timeframe players involved, usually those who got most recently long at poor location.