Panic selling is the emotional, irrational selling of assets during sharp price declines driven by fear rather than analysis, often resulting in selling near bottoms and locking in maximum losses. It's characterized by hasty decisions without considering fundamentals, portfolio strategy, or whether the decline represents a buying opportunity. Panic selling typically happens when traders lack predetermined plans, use excessive leverage, or invest more than they can afford to lose.
Example:
During the October 2025 Bitcoin crash, price dropped from $126,000 to $105,000 in 18 minutes as leverage cascades triggered. Retail traders watching their portfolios decline 20% in less than an hour panic sold Bitcoin at $105,000-$108,000, fearing further losses. Bitcoin bottomed at $80,659 two weeks later, then recovered to $95,000 within a month. Those who panic sold at $105,000 locked in 17% losses and missed the 18% bounce from the bottom, turning temporary volatility into permanent losses by selling during maximum fear.