What is a dead cat bounce?
In one line: A dead cat bounce is a short rise in price after a big drop, before the price keeps falling.
What it means
A dead cat bounce is a quick rise in the middle of a big fall. Price drops hard, bounces a little, then drops again to new lows.
The bounce looks like a recovery. It isn't one.
Where it comes from
The grim phrase comes from a Wall Street saying: "even a dead cat will bounce if it falls from a great height." One of the earliest known uses in print was in the Financial Times in 1985, about falling stock markets in Asia.
The real lesson
Prices rarely fall in a straight line. Even in a strong downtrend, some sellers take their gains and some buyers step in. That causes bounces.
A bounce alone tells you very little. What matters is where it stops.
- In a downtrend, each bounce stops below the last bounce. Lower highs, lower lows.
- A real turn usually needs price to close above the last bounce high.
The trap inside it
The trap is relief. After a big drop, any green candle feels like the worst is over. People buy the bounce, then the fall resumes.
This is a close cousin to a Bull trap: a move that looks like a turn up, then reverses.
You can only label a dead cat bounce after it fails. Before that, it's just a bounce. So wait for proof, not hope.
A simple example
A stock falls from $100 to $60.
- It bounces to $70. Many traders cheer.
- The last bounce high during the fall was $78. The $70 bounce stopped well below it.
- Price turns down and falls to $55, a new low.
That $60 → $70 move was the dead cat bounce. Illustration only.
A trader waiting for a candle body to close above $78 never bought it. If price had closed above $78, that would have been a sign the fall was changing character. See Change of character.
What to check before trusting a bounce
- Did it beat the last bounce high? Use a body close, not a wick.
- What does the bigger chart say? A bounce against a big downtrend is weaker.
- Is there news behind the drop? A broken business story can keep falling.
More in how to identify a trend. The free StructureX chart tool on TradingView marks those turning points for you.
Questions
How long does a dead cat bounce last?
There's no set time. It can last hours or weeks. It's only called a dead cat bounce once price falls to new lows afterward.
How do you tell a dead cat bounce from a real recovery?
A real recovery usually closes above the last bounce high and starts making higher lows. A dead cat bounce stalls below it.
Does a dead cat bounce happen in crypto?
Yes. It can happen in any market that falls sharply, including stocks, crypto and forex.
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