Dead cat bounce or also known as the DBC is a term in trading that you should understand. It is a kind of situation which describes certain situation and needs the right action to handle that.

When the stock market falls sharply, and then rebounds, many traders eagerly enter the market. The hope is that the profit is great and earn money as much as they can.

However, always keep in mind that the rebound occurs is not necessarily real, it can be just a trick. There is a term that needs to be known by the market participants, namely Dead Cat Bounce. What does it mean？

How a trader can recognize this situation？ To recognize everything, you should understand about it‘s definition and position. This article will describe about it’s detail.

The Meaning of Dead cat Bounce

Knowing about the definition is the first thing to know before exploring deeper. DBC is a term that refers to the temporary rise of an index or stock price in the middle of a downturn phase.

You can say that it is just a temporary rally which does not indicate a reversal of the downtrend phase. After the DBC moment, the price fell again. This is a general thing which always happen.

The term of dead cat bounce comes from the unique understanding. It is if it has fallen from a very high place, even a dead cat can bounce. Are there any examoles that you may note？

The example of this case was when JCI fell due to Covid-19 in 2020. There was a Dead Cat Bounce, and then plummeted again. The chart can be found easily to see the real form of it.

The Risks and Causes of DBC

The DBC is often called as “sucker's rally.” This means that it may trap those who are not vigilant and dont understand anything. The risk is of course, after the moment there is a further and often sharper decline.

That is why; the trader must be smart enough and has a lot of experiences to avoid that. However, what are the causes？ Based on the data, there are several things which can cause the dead bounce cat.

Usually, There are some market participants who cover short (take profit sell positions). They feel that the market has dropped deep enough and made a purchase because of that consideration.

Another cause is that several investors who make the purchases because they find stocks that are oversold (considered as a cheap one). These are the triggers of DBC and how it can occur.

How to Detect the DBC and other situations

It is difficult to determine whether the rise in the market is a Dead Cat Bounce or a real reversal of direction. Because basically the market is difficult to predict and the situation can change quickly.

However, there are a few things that can be considered to detect this case. The first thing is the Temporary increases are usually not very sharp and Somewhat overriding.

The second condition is the Transaction volume is usually lower than usual, because market participant sentiment is still negative. There is only a few market participants who are willing to buy.

Prepare Yourself Properly

Whatever the condition is, dont forget to always prepare yourself with the proper strategy. One of them is by joining only the best forex broker. It provides the great facilities and services.

Salmamarket forex broker is an example. Salmamarket combines the latest technology of MetaTrader with their high quality features. It also serves the access to whole markets.

The capital needed is not too much, so that it is suitable for beginners or even pfofesionals. You are able to trade comfortably and face any situations better such as the dead cat bounce.