What is a dead cat bounce in crypto?

What is a Dead Cat Bounce? A dead cat bounce is a term used to describe a sharp, short-term rise in a cryptoasset’s or market’s price that occurs in the middle of a longer-term downtrend.

What causes a dead cat bounce?

Reasons for a dead cat bounce include a clearing of short positions, investors incorrectly believing the bottom has been reached, or from investors trying to find oversold assets. Ultimately, the dead cat bounce is not founded on fundamentals and so the market continues to decline soon after. What Is the Opposite of a Dead Cat Bounce?

How to trade on a dead cat bounce?

Timing is crucial when trading on a dead cat bounce. Once you identify one, you should short when the price action breaks below the last bottom. Correct timing ensures that you profit as much as possible from a significant part of the price decrease. Bear in mind that dead cat reversals tend to be sharp and fast.

What should you expect when you discover a dead cat bounce pattern?

When you discover a dead cat bounce pattern, you should aim for a minimum price move equal to the previous trend impulse. In other words, if the price starts dropping suddenly and you confirm a dead cat bounce pattern afterwards, then you should expect the price to drop at least with the same size.