Dead Cat Bounce Definition
The Dead Cat Bounce refers to a temporary and brief recovery in the price of a declining cryptocurrency or blockchain stock. This recovery is often mistaken for a reversal of a downwards trend, however, it is usually followed by a continued downtrend.
Dead Cat Bounce Key Points
- The term originates from the notion that even a dead cat would bounce if it fell from a great height.
- It represents a short-lived recovery from a prolonged decline or a bear market.
- It’s often caused by speculators who buy in believing the asset has hit rock bottom, creating a temporary price rise.
- Despite the temporary price rise, the downtrend generally continues after the bounce.
What is Dead Cat Bounce?
Dead Cat Bounce is a term widely used in financial markets, including cryptocurrency and blockchain. It is a phenomenon that describes a short, temporary recovery of the price of an asset that is falling. The term is a metaphoric phrase implying that even something with little value would bounce if it has fallen from a great height.
Dead Cat Bounce – Who Utilizes this Term?
Both traders and investors in the financial markets around the world use the term Dead Cat Bounce. Traders use it to describe the market phenomenon where there is a brief recovery in the price of a falling asset, while investors use the term to caution against mistaking this short rise for a market recovery.
When does Dead Cat Bounce Occur?
A Dead Cat Bounce occurs during a prolonged bear market, or a consistent downward trend in the market. Typically, this brief recovery happens when speculators believe the asset has touched its lowest possible point and start buying, creating a short-lived surge in prices.
Why is the Term Dead Cat Bounce Important?
The term Dead Cat Bounce is essential because it helps traders and investors distinguish between a temporary recovery and a genuine market reversal. It cautions them not to mistake this brief price rise for a sustainable recovery, therefore preventing unnecessary loss from buying in a continuously falling market.
How is the Term Dead Cat Bounce Used?
The Dead Cat Bounce can act as a signal for short-sellers in the market. These are investors who aim to profit from the price drop of an asset. When they see a Dead Cat Bounce, it could be an indicator that it’s an optimal time to sell, as the asset’s price will likely continue to fall after the bounce.
