What is a Dead Cat Bounce? (part 1/2)
A dead cat bounce is a stock market term used to describe a temporary, short-lived recovery in the price of an asset (e.g., stocks, cryptocurrencies, or other financial instruments) after a significant and prolonged decline.
This recovery does not signal a trend reversal, but rather a short-term correction, usually followed by further price declines. Main features of a dead cat bounce:
🔵Short-term recovery: After a sharp price drop, there is a brief and temporary increase in the price of the asset.
🔵Continuation of the downtrend: After the rebound, the price of the asset continues to fall, sometimes reaching new lows.
🔵Lack of fundamental reasons for a rally: Unlike a true trend reversal, a dead cat bounce is generally not accompanied by improvements in fundamental factors such as company financial performance, news or changes in the overall economic situation.
Why it is important to understand a dead cat bounce:
🔵Avoid false signals: Traders an… 2 replies
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