What is Dead Cat Bounce?
Crypto Glossary Definition
A small price recovery after a large crash, giving an indication of false hope for an ultimately dead asset. Comes from the phrase, 'Even a dead cat bounces once.''
Why Dead Cat Bounce Matters
A dead cat bounce is a short-lived price recovery within an ongoing downtrend, followed by a resumption of the decline — the phrase (grimly) implies that even a dead cat will bounce a little if it falls far enough, warning traders not to mistake the bounce for a genuine reversal.
Dead Cat Bounce in Practice
After a token crashes sharply over the course of a week on bad news, its price suddenly jumps back up over the next two days, and social media fills with posts declaring the bottom is in. Traders who bought during that bounce, convinced the worst is over, watch as the price stalls, rolls over, and resumes falling shortly after — eventually dropping well below where it was before the brief recovery even started. What they experienced is a dead cat bounce: a short, often sharp rally within a broader downtrend, driven by short-covering, bargain-hunters stepping in too early, or simple relief after a steep decline, rather than by any genuine change in the asset's underlying fundamentals or sentiment. The grim phrase behind the term suggests that even a dead cat, dropped from high enough, will bounce slightly on impact — it doesn't mean the cat is alive. Experienced traders try to distinguish a dead cat bounce from a real reversal by looking for confirming signals like sustained volume increases or a break above a key resistance level, rather than trusting the first uptick after a crash. Getting this distinction wrong is one of the most common ways traders lose money trying to catch what looks like a bottom.
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