Definition:
A dead cat bounce is a momentary increase of cryptocurrency prices after a prolonged decline, followed again by a continuance of the downtrend. This type of bounce is usually observed during bear markets, where there may be periods of temporary recovery. Dead cat bounces, however, do not indicate improvement of the market as prices continue to decrease again shortly after the bounce.
Explanation:
A dead cat bounce comes from the saying, “even a dead cat will bounce if it is dropped from high enough.” That is, even if the market is seemingly dead, there will be periods of short-lived prices increases. It is important to note that dead cat bounces do not indicate a bullish market sentiment.
There can be several factors that can cause the market to bounce temporarily. Dead cat bounces may occur due to investors opening long positions as they believe that a bottom has been reached. It may also be caused by investors who see oversold indicators in their technical analyses. Short-term traders or day traders tend to benefit the most from these types of price actions.
← Back to Dictionary
