Dead cat bounce :
A dead cat bounce is a temporary recovery from a prolonged decline or a that is followed by the continuation of the Trend. A dead cat bounce is a small, short-lived recovery in the price of a declining security, such as a stock. Frequently, downtrends are interrupted by brief periods of recovery — or small rallies — where prices temporarily rise.
How to Spot a Dead Cat Bounce
Spotting the dead cat bounce pattern is very tricky. Therefore, I will now share with you a solid approach for how to spot a dead cat bounce on the chart.
The confirmation of the pattern does not present itself on the price bounce; this is only the first signal there is a potential dead cat bounce.
The signal confirmation of a dead cat bounce occurs when the price breaks the low of the previous bottom. Let’s explain this on a “fisher price” level:
- Identify a stock in a strong bearish trend.
- Spot a price increase, which breaks the slope of the downtrend. This bounce is minor in terms of retracing the down move from the most recent high.
Wait for the price to break the low set before step
How to Trade the Dead Cat Bounce
Now we need to discuss the steps for opening a trade. It is crucial to mention that timing is very important when you trade this pattern. If you don’t stick to the trading rules of the dead cat bounce chart pattern, you might end up losing your shirt.