A Capitulation event in a trading market can be described as a moment where maximum traders sell off their assets thinking that price will keep going down and it would be better to save whatever that can be recovered.
See the above screenshot, this is from 12th March, 2020 and was a result of the COVID pandemic around the globe. Not only crypto, but every stock market and asset around the globe experienced this ‘Black Swan’ event and traders lost money left-right and centre.
The above capitulation led to a price fall of -59.07% over just two trading days. A price fall from $9,200 to $3,800 for Bitcoin was massive. Traders literally threw their towel in the ring and gave up. But what happened after that?
This capitulation event marked the absolute bottom of Bitcoin. See the screenshot below
After the Capitulation event, Bitcoin never went below $3,800 after that, instead it started a bull-run and new cycle. Traders who bought the FEAR in the market saw a massive upside move of 1569% till the top of $64,854. Other coins like ETH, THETA, DOGE saw parabolic gains and made life-changing money for people.
Many traders leave the market when a capitulation candle happens, but it’s probably the best indicator to buy at that point of time.
Because this is the moment when almost all the sellers have sold and left the space, and there are now only buyers left. This kind of candle clearly shows that price refuses to go below the recent set low and it starts a new upward trajectory.
How to trade it?
Not financial advice. Buy in when the candle begins to stabilise. Many a times traders will be catching falling knives and the dip never seems to end. Always wait for a minimum 2–3 candle closures that confirms the bottom is in. On shorter time-frame charts, price usually goes up from the recent low, but tends to revisit the same level and confirm it as support. My tip, set a Stop Loss around 5–6% lower than the current low. This puts proper risk management in place, in case things go south and also avoided frequent in and out of positions.
I am again repeating, please treat this as educational content and not financial advice.