Trading is well-known for having a lot of colorful slang that is particular to it. The Dead Cat Bounce one might be the darkest and oddest out there.
You might also enjoy:
In 1985 the stock markets in Malaysia and Singapore were experiencing a recession. Late in the year, a pair of journalists took the time to review these markets. Wong Sulong and Horace Brag were looking at it just when the recession experienced a small uptick after its long fall.
These journalists from the Financial Times then surprised their readers by describing this situation using a term they had coined. They described the way the price moved as a “dead cat bounce.” The idea behind this phrase is that even a dead cat will bounce if you drop it from high enough.
Let’s clarify the meaning of the term. It can be used when either an asset or a market experiences an uptick after a long fall. It also implies that the falling price is legitimate and that there is a reasonable expectation it will be seen falling further after the bounce. In other words, the turnaround shown by the bounce is temporary. This makes the “dead cat bounce” a phrase more useful for describing past price movements rather than predicting them. The reason is that it’s generally difficult to be sure that the recovery is temporary.
A similar phrase that might be used in this case is a “Sucker Rally.” Based on the presumption that the downward trend is reliable, investors would be suckers to buy in after seeing a dead cat bounce, presumably because the price decline is likely to continue. When you see a possible dead cat bounce, consider being more of a dog fan.
Get to know the Trader Career Path
We hope you enjoyed this article.
Put your skills to the test with the Trader Career Path, our funding evaluation designed for traders to prove their skills and build a trading career. Traders who pass the evaluation get a funding offer from a proprietary trading firm and keep 80% of the profit they make from it. Don't miss this opportunity! Contact us to learn more. Take the first step towards your new trading career today