V Formation

V Formation: In finance, a V formation refers to a scenario where the price of a security steeply falls , and then recovers steeply. A V formation might be the indication of a bullish market, but according to analysts, investing in one might be risky because of the possibility of another steep price fall. Similarly, a reverse V formation is the indicator of a bearish market. In a bullish market, the V pattern is an indicator that the security in question has bottomed out and is in a rising (bullish) trend.

Many analysts believe that a V formation is not a good indicator of the security’s long term future price and generally of the health of the market. V formations cause instability in the market, and can cause a general panic, with investors pulling out of the market, leading to the probability that the price of the security might not go up in the future.

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Edited and Updated 08th March 2014

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