Why do they call it a dead cat bounce?

The term comes from the old Wall Street saying that even a dead cat will bounce if it falls from a great height. In trading it describes a brief false recovery in a declining asset — the bounce looks promising but the underlying trend has not changed, just as a dead cat cannot truly recover.

Is the dead cat bounce the same as a bull trap?

They are closely related but not identical. A bull trap is any false signal that leads traders to enter long positions before the price falls again. A dead cat bounce is a specific event-driven pattern that creates a bull trap — so all dead cat bounces produce bull traps, but not all bull traps are dead cat bounces.

What happens after the dead cat bounce?

After the temporary recovery phase fails at resistance, the original downtrend resumes. Bulkowski's research found prices typically decline an additional 20-30% in equity markets after the bounce phase completes. The downtrend often breaks below the initial low that preceded the bounce.

Is a dead cat bounce bullish or bearish?

A dead cat bounce is a bearish continuation pattern. Although the bounce phase itself is a short-term price increase, the overall signal is bearish — the temporary recovery is expected to fail, and the downtrend is expected to resume.

How long does a dead cat bounce last?

Modern dead cat bounces in forex markets typically resolve within 5-7 trading days. The bounce phase itself often completes within 24-72 hours of the event that triggered the initial decline. Bounces extending beyond 72 hours may indicate a genuine trend change.

What is the minimum decline needed to confirm a dead cat bounce?

In forex, a sharp 1%+ decline in major pairs is typically the threshold, triggered by a clear fundamental catalyst on above-average volume.

How do you tell a dead cat bounce from a genuine reversal?

The key signals are volume and Fibonacci levels. A dead cat bounce typically shows declining volume during the recovery and stalls before the 61.8% Fibonacci retracement. A genuine reversal usually shows increasing volume throughout the recovery and breaks above multiple resistance levels with momentum.