**Dead Cat Bounce** is a term that describes a temporary rise in the price of an asset after a sharp decline, which is then followed by further declines. The name comes from the saying that "even a dead cat will bounce if it falls from a height."
Here is the meaning of each stage in the image:
1. **(1) Price reacts to news and moves quickly following the trend**
This describes sharp price movements, usually a drastic drop due to negative news or other external factors.
2. **(2) Dead Cat Bounce**
After a sharp drop, the price experiences a small bounce upwards. This is not a sign of a trend reversal, but rather just a temporary technical or psychological market reaction.
3. **(3) Retracement around 50%**
This bounce usually corrects about 50% of the previous decline. Traders sometimes think this is the beginning of a recovery, but it is merely a pause before the downward trend continues.
4. **(4) Continuation of movement in the original trend direction**
After the retracement, the price continues to decline further, reinforcing that the previous bounce was only temporary.
**Conclusion:**
This pattern is often seen as a "trap" for traders who believe the market will recover, whereas the market is still bearish (downtrend). It is important to be cautious in investment decision-making.
