A falling knife is a term that is used to describe a price decline of an asset. When this occurs, knowledgeable traders wait to reinvest in the asset until it reaches its lowest point. This is because many assets quickly recover after the falling knife reaches its bottom, also known as a whipsaw.
A falling knife can result in enormous returns for many investors if it is timed correctly. Conversely, investors run the risk of losing money if they do not purchase the stock in line with the trend if the price continues to decline until a whipsaw occurs and prices climb above the investors’ starting position.
You’ll need luck, guts, and market expertise to catch a falling knife without losing money. Freefall approaches are not advised for people with small investments or a poorly diversified portfolio. For investors who view the market as a game and a chance to make money, the risk and rewards involved intrigue this strategy.
There are numerous reasons why a knife might fall. Economic reports, public stock offers, support and resistance levels, negative company news, and many others are just a few.
