GLOSSARY // Day Trading

Shakeout

Unlike a breakdown, which starts a new leg lower, a shakeout is a brief dip below support that reverses right back into the range once the stops beneath it are triggered. The dip ends because it accomplished its purpose: the weak hands are out and their shares changed owners.

Stops cluster under obvious levels, and that resting liquidity attracts price. A push through the level fills larger buyers at a discount, which is why shakeouts so often precede the real move up. The practical defense is stop placement below where the crowd's stops obviously sit, or sizing down and using a mental stop with a time component.

worked example

A stock ranges between $24.00 support and $25.00 resistance for two hours. It dips to $23.85 for ninety seconds, printing 400,000 shares as stops fire, then reclaims $24.20. An hour later it breaks $25.00 and runs to $25.80, without the shaken-out longs.

Related terms

Educational only — not financial advice. Definitions simplified for clarity; markets are messier than definitions.