Author: Inna Golovacheva explains how the market raises the dead so you can go long.
🐈 What is a Dead Cat Bounce?
This is when the price drops sharply, and then makes a small bounce to pretend it's "alive". In reality - it's the last convulsion before a new dump.
📉 Dropped by -25%,
📈 bounced by +7%,
and you are like: "HERE IT IS, THE REVERSAL!", but the market whispers: "no, that was just a dead cat" (though with a decent bounce).
🧠 How does it work?
A large participant dumps volume. The crowd is panicking - not buying. But then smart ones fly in, who are "trading the bounces". The big player unloads the leftovers right in their face). Mission accomplished: the bounce is drawn, the dream of a reversal is sold, accounts - liquidated.
🚩 Signs of a Dead Cat Bounce:
📉 Sharp drop with high volumes;
📈 Quick bounce of 5–10%;
❌ No fundamental reason;
🪫 Volume in the bounce is less than in the dump;
🧱 No consolidation after the bounce, just death)
🪦 Why do you fall for it? Because you want to believe, you don't see reality, you see "an opportunity to enter at the bottom". But this is not the bottom. This is the basement under the basement.
🛡 How to recognize a Dead Cat?
1. Look at the volume (if the bounce is weaker in volume than the dump - this is not a bullish signal, it's a trick).
2. Analyze the behavior of players (a bounce without consolidation, without a base, without accumulation - is not a reversal).
3. Don't jump in on the bounce if you don't understand the structure. Or set a micro-stop, because there may not be a return.
4. Check the overall market structure. If the global trend is bearish, and suddenly "everything is rising", it's more likely a trap.
☠️ Remember: if the cat has already fallen from a 30-story building, don't expect it to fly. It just bounced in your face, and now you are long - in hell.
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