What is a dead cat bounce
A dead cat bounce is a short, temporary price recovery inside a falling market, after which the decline continues.
The name comes from an old trading saying: even a dead cat bounces if it falls from high enough. The bounce does not mean the trend has turned.
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Precise definition and edge cases
In technical analysis (the study of price charts), a dead cat bounce has three parts:
- A sharp decline, often on heavy volume, frequently after bad news or a forced sell-off.
- A rebound that recovers only part of the fall. Volume is often weaker than during the drop.
- A renewed fall that takes price back below the low the bounce started from.
Some points matter for experienced readers:
- The label is applied afterwards. While the rebound is happening, nobody can know if it is a dead cat bounce or the start of a real recovery. The term is confirmed only when price makes a new low.
- It is not a fixed chart pattern. Unlike a head and shoulders or a flag, there is no agreed rule for how big the rebound must be or how long it lasts. Different analysts mark it differently.
- Context decides the name. A rebound in a long-term uptrend is usually called a pullback or a market correction ending. A dead cat bounce belongs inside a bear market or a steep sell-off.
- Short covering often drives it. Traders who sold short buy back to lock in gains, which lifts price for a while without new long-term buyers.
Worked example (hypothetical)
Imagine a stock index CFD that falls hard over several sessions after weak earnings from its largest companies.
- The index drops steeply and closes near its low of the move.
- Over the next few sessions it climbs back, recovering roughly a third of the loss. Commentators start calling it a "recovery".
- Volume on the up days is lower than on the down days.
- The index then turns lower again and closes below the earlier low.
Looking back, the rebound in the middle is the dead cat bounce. A trader who opened a leveraged long position during the rebound, expecting the fall to be over, would have faced a loss as the decline resumed. Leveraged CFD and forex trading can lose money fast, which is why position size and stop-loss levels matter. See risk management.
Where you see the term
- News and market reports. Headlines use it when an index, stock, currency or crypto asset rebounds after a crash, often with a question mark, because the outcome is not yet known.
- Analyst notes. Research desks use it to describe a rebound they consider unconvincing.
- Trading platforms. MetaTrader 4 and MetaTrader 5 do not label a dead cat bounce automatically. Traders identify it themselves on the chart, using volume, moving averages or candlestick patterns.
Related terms
- Capitulation: heavy, panicked selling that can come before or after a bounce.
- Catching a falling knife: buying during a steep fall, often during a dead cat bounce.
- Consolidation: sideways price movement that may follow the bounce.
- Flash crash: a very fast fall that can produce a sharp rebound.
- Chart patterns and technical analysis: the wider toolkit for reading such moves.
- Trading glossary: more definitions.
Frequent questions
What does dead cat bounce mean in simple words?
It is a brief rise in price during a downtrend that fades, after which prices keep falling.
Is the dead cat bounce pattern reliable?
No. It has no fixed measurement rules and can only be confirmed after price makes a new low.
How is it different from a trend reversal?
In a reversal, price keeps rising and forms higher lows. In a dead cat bounce, the decline resumes below the previous low.
Does it apply to forex and crypto too?
Yes. The term is used for any market: stocks, indices, currency pairs, commodities and crypto assets.