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How a Dead Cat Bounce Works and Why It's Hard to Spot in Real Time
A dead cat bounce (DCB) is a short-lived price recovery that happens in the middle of a larger downtrend. The price spikes up briefly, giving the illusion that the worst is over, and then falls again to make new lows. It is classified as a continuation pattern in technical analysis, which means it does not signal a change in direction. Instead, it confirms that the downtrend still has more room to run.
The tricky part is that a dead cat bounce looks almost identical to a genuine recovery while it's happening. There is no flashing neon sign that says "this is a trap." The pattern can only be confirmed after the fact, once the price drops below its previous low. That retroactive nature is exactly what makes it so dangerous for traders who act too early.