When Dead Cats Bounce: Recognizing a Critical Trading Trap

A Dead Cat Bounce (デッド キャット バウンス in some markets) is one of the trickiest patterns crypto traders encounter. The phenomenon refers to a temporary price rebound that appears during a strong downtrend, only to resume falling shortly after. Think of it as false hope—the market seems to recover, but the decline isn’t actually over.

How It Plays Out in Markets

The pattern gets its name from a Wall Street saying: “even a dead cat will bounce if dropped from a high enough building.” When an asset enters a major selloff, it occasionally shows brief upward movement that catches traders’ attention. This recovery might last hours, days, or weeks. Many mistake it for a legitimate trend reversal, especially during the early stages when the price action looks convincing.

However, the key distinction emerges when the bounce fails to hold. Sellers return, previous support levels get broken, and new lows form. This is when traders realize it was merely a dead cat bounce—not a recovery at all.

The Bull Trap Risk

One of the most dangerous aspects of this pattern is how it creates bull traps. Traders who recognize the bounce often open long positions, betting the downtrend has reversed. They stop-losses get hit as the price continues lower, locking in losses at the worst possible moment. For technical analysis practitioners, dead cat bounces fall into the category of continuation patterns—meaning they signal that the prior downward movement will eventually continue, not end.

A Historical Example

The term gained prominence in early December 1985 when Wall Street journalists cited a broker describing financial markets in Singapore and Malaysia. Both economies had shown brief recovery signs after steep declines, only to continue deteriorating in subsequent months. That pattern holds true across markets and decades: the bounce is temporary, the decline is structural.

For crypto traders watching charts, the lesson is clear: every rebound during a downtrend deserves skepticism. Confirming that support truly holds—or breaks—requires patience and solid technical analysis before committing capital.