Falling Knife Definition
A “Falling Knife” is a term used in cryptocurrency market and trading systems to suggest a sudden and drastic drop in the value or price of a particular cryptocurrency. The term suggests the risks of attempting to buy that cryptocurrency during its rapid decline, likened to trying to catch a knife in free fall, something deemed risky and dangerous.
Falling Knife Key Points
- A falling knife suggests a drastic and rapid decline in the price of a cryptocurrency.
- The risk associated with investing or buying a cryptocurrency during this period is deemed dangerous.
- It is often suggested to investors to wait until the price stabilizes before making purchase decisions.
What is a Falling Knife?
A falling knife in the crypto market context refers to an outright plunge in the price or value of a digital currency. This drastic dip in price is often unexpected and is characterized by considerable volume, causing panic selling among investors.
Where Can a Falling Knife Occur?
A falling knife can occur in any cryptocurrency market, including the popular ones like Bitcoin, Ethereum, and smaller altcoins markets. It is not limited to any geographical location and can happen to any cryptocurrency regardless of the asset’s previous performance.
When Does a Falling Knife Happen?
A falling knife event can happen at any time. It is often triggered by a significant event or something that brings about negative sentiment among investors. This could be a regulatory crackdown on cryptocurrencies, a high-profile hacking, or the collapse of a significant trading platform.
How to Handle a Falling Knife?
Experts advise not to try and “catch a falling knife”, suggesting that buying cryptocurrencies in their drastically falling phase is inadvisable. Instead, it is often suggested that investors should wait for the price to stabilize or to see some indications of recovery before making investment decisions.
Why Does a Falling Knife Occur?
A falling knife may occur due to various reasons, ranging from negative market news, fundamental changes in the cryptocurrency’s framework, mass-selling by large investors, or just overall market trends. It indicates market uncertainty and panic selling, which leads to a swift decline in price.
