Why do we speculate that retail investors are capitulating? Three major characteristics have already aligned!

1. Decreased Liquidity

Retail investors are one of the important sources of market liquidity. Their frequent trading provides a large number of buy and sell orders, allowing large transactions to be completed quickly.

Once retail investors stop buying, market liquidity will significantly decrease, the bid-ask spread will widen (if no one buys when you want to sell, you will keep lowering the price, the lower it goes the more afraid you become, and the more afraid you become the lower you go), and transaction costs will rise. This not only affects market efficiency but may also make it more difficult for large funds to enter and exit, further exacerbating market volatility.

2. Increased Price Volatility

The exit of retail investors may cause the market to lose some “buffer,” leading to more severe price fluctuations. Especially during market downturns, the lack of retail investors' bargain-hunting behavior (meaning they are not even engaging in chasing prices or selling off) may accelerate the decline, creating a vicious cycle.

3. Deteriorating Market Sentiment

The capitulation of retail investors often accompanies the spread of pessimistic sentiment. When retail investors stop buying or even start selling stocks, market sentiment may worsen further, leading more investors to follow suit and sell off, creating a “herd effect.”

I enjoy contracts, like to study charts, and research techniques. I have years of experience in the crypto circle and share my tips freely. I’m waiting for you in the circle, always online, welcome to discuss and improve together.