Dead Cat Bounce
In simple terms
When a stock or cryptocurrency is falling in price, sometimes it bounces back up for a short time before continuing to drop—like a dead cat bouncing when it hits the ground. This brief recovery tricks some people into thinking the price will keep going up, but it's usually just a temporary pause in the downward trend.
Definition
A temporary price recovery in the middle of a larger downtrend.
In depth
A dead cat bounce occurs during a prolonged downtrend when a temporary price recovery attracts new buyers or triggers short-covering, creating a brief spike in trading volume and upward price action. This recovery lacks fundamental support from improved market conditions or positive catalysts, and technical analysis often reveals weakened momentum indicators (such as declining volume on the bounce or failure to break previous resistance levels). The bounce typically exhausts itself quickly as sellers re-enter the market, resuming the underlying downtrend. Traders use this pattern to identify potential shorting opportunities or confirm the strength of the bearish trend, as the inability to sustain the recovery suggests selling pressure remains dominant.
How does Dead Cat Bounce work?
The pattern comes from a pause in selling rather than a return of buyers. After a steep drop, short sellers close positions by buying back, forced liquidations finish working through, and some buyers step in at the lower price. With sellers momentarily absent, even modest demand lifts the price and it recovers part of the fall. The conditions that caused the decline are unchanged, so selling resumes and the price makes a new low. The label can only be applied afterwards — nothing in the bounce itself distinguishes it from a genuine recovery.
An example
Illustrative: a coin falls from $100 to $60 over two weeks, then climbs to $72 in three days — recovering $12, or 30 percent of the $40 decline. Commentary treats the recovery as the bottom. Selling resumes and the price reaches $45 the following week. Only at that point does the move from $60 to $72 get called a dead cat bounce; while it happened, it looked like any other rebound.
Figures are illustrative only.
What beginners get wrong
- Calling a bounce dead while it is happening is guesswork; the pattern is only identifiable once a lower low has actually formed.
- Not every partial recovery fails, and assuming all of them are doomed is as unreliable as assuming all of them are bottoms.
- Some beginners open shorts on the strength of the label alone, which exposes them to loss if the recovery continues instead.
Related terms
Part of
What are crypto market cycles and market sentiment? — the subject page for market cycles and sentiment, with all 18 of its definitions in one place.
Educational only — not financial advice.