How Can Circuit Breakers or Trading Halts Mitigate the Psychological Panic Driving a Death Spiral? ▴ Learn

How Can Circuit Breakers or Trading Halts Mitigate the Psychological Panic Driving a Death Spiral?

Circuit breakers and trading halts serve as a forced "time-out" on market panic. By temporarily stopping all trading activity, they break the momentum of a fear-driven sell-off.

This pause disrupts the immediate feedback loop where falling prices trigger more emotional selling. It allows investors and algorithms a moment to process information and potentially recalibrate their strategies away from pure panic.

This intervention can help dissipate herd behavior and allow for a more orderly market when trading resumes.

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