Leverage Shakeout

A leverage shakeout is a market event where prices move sharply to liquidate over-leveraged positions, effectively clearing the market of excess speculative froth. This is often seen as a necessary cleansing process that allows for a healthier and more sustainable trend to emerge.

During a shakeout, the rapid closing of positions can lead to exaggerated price moves that trap retail traders who are caught on the wrong side of the volatility. In crypto, these events are frequent due to the widespread availability of high-leverage trading.

Experienced traders look for signs of a shakeout to identify potential long-term entry opportunities after the panic subsides.