What Is Dead Cat Bounce?
A dead cat bounce is a brief, short-lived recovery in the price of a declining asset. The phrase comes from the morbid observation that "even a dead cat will bounce if dropped from high enough." In crypto, dead cat bounces are extremely common — a token drops 50%, recovers 20%, then continues falling another 50%.
How Dead Cat Bounce Works
Dead cat bounces occur because oversold conditions trigger short covering and bargain hunting. After a sharp decline, shorts take profits and optimistic buyers step in, creating a temporary relief rally. However, the underlying selling pressure hasn't been absorbed — distribution continues, and the price rolls over to new lows.
Why It Matters for Traders
Distinguishing a dead cat bounce from a genuine reversal is one of the hardest skills in trading. Key clues: dead cat bounces typically occur on declining volume, fail at prior support-turned-resistance levels, and lack confirmation from on-chain metrics like exchange outflows. Waiting for a higher high and higher low before declaring a reversal prevents falling for the trap.
