Capitulation pertains to a specific period of selling. Here, investors give up their positions and sell their holdings in the quickest way possible. Another name for this is “Panic Selling” given that during Capitulation the sell orders reach their peak at a much higher-than-average level. This drives the prices of the assets lower to the point that the prices reach the bottom.
Capitulation may also be described as the point wherein the investor gives up hope. At this time, they accept their losses and give up their previous gains. Once Capitulation is over, either the consolidation period or an upward trend may follow. These conditions may herald the market’s entry into a Bullish Market.
Price reversals and strong upward trends may be the result of Capitulation periods in light of episodes usually marked by FUD and panic. As this is the case, the selling pressure exceeds normal levels, thus going into oversold conditions. The more sudden the price drop is, the higher the chance that it will be succeeded by a strong bounce.