The term “Dead Cat Bounce” refers to a circumstance where a security (read stock) or index has a brief uptick in movement during a generally negative trend. For example, immediately following a significant correction or downward trend, there is a brief uptick in the price of an asset or an index.
The expression “even a dead cat will bounce if dropped from a height” inspired the word. Unfortunately, it is frequently exceedingly challenging for analysts and traders to foresee a dead cat bounce, a phrase that is commonly used in the investing sector.
A dead cat bounce is a continuation pattern, meaning that the price keeps moving in the dominant long-term trend after it occurs. This pattern can initially seem to reverse an asset’s overall trend, encouraging bullish traders and investors to buy it, only for the price to continue sliding.
However, the top of this phenomenon also gives traders a chance to start short trades to take a profit when the asset continues falling.
