Dead Cat Bounce

A Dead Cat Bounce is a temporary recovery from a period of declining stock price. This is not a Bottom Bounce, as this is a temporary bounce in price, normally due to short cover or buyers anticipating a bottom bounce.

Generally in a declining stock price, there could be several dead cat bounces.

Let say a stock price has drop 30% and buyers think it has reached the bottom and might start going back up, they buy in temporary raising the stock price, causing a dead cat bounce.

Dead Cat Bounce

Bottom Bounce

A Bottom Bounce is chart pattern shows when a stock chart’s price action hits a bottom and bounces back up, Generally forming what looks like a “V” appearance on the chart. Generally there is a trend of declining price action up to a point where the bounce occurs and the price action moves back up.

A Bottom bounce is different from a Bottom Reversal, where the Bottom bounce does not always mean a change in longer term trend for the stock price, more so a temporary bounce.

If you want to know what a bottom bounce would look like; get a ball and go on your roof. Simply drop the ball from the roof and you will see about a 10-50% bounce from the height the ball was dropped. This is not to say every bounce will be 10-50%.

It’s difficult and risky trying to catch the bottom of a bounce. Generally it’s a good idea to position for a swing trade opportunity when you see the drop and a green candle starts to form. Make sure you honor your stop losses and stick with your original trade plan when trading a bottom bounce opportunity.

Bottom Bounce

Also see:
Bottom Reversal
Dead Cat Bounce