Dead Cat Bounce
BearishContinuationBeginnerA crash, a weak bounce that fools buyers, then the next leg down.
Verdict: CautionBitcoin 4H: 38 trades, won 68%, avg trade +0.3% vs random day −0.2%. Backtest
Price crashes. A big, fast drop, much bigger than a normal swing.
step 1/6
Trade rules
| Direction | Short (sell) |
|---|---|
| Entry | After a crash of 12%+ in at most 36 candles on Bitcoin 4H (15%+ in 30 days on stocks) and a bounce that wins back at most half of it, a candle CLOSES below the crash low, within twice the bounce length plus 5 candles after the bounce top is confirmed. |
| Cancelled if | Price trades above the bounce high before that close. |
| Target | Bounce height, projected from the breakout |
3 common mistakes
- Shorting the bounce top before price breaks the crash low.
- Calling every bounce dead: one that wins back more than half is a real recovery.
- Stops too tight: after a crash, candles are huge.
Backtest
same rules every time · equal size · no fees · method| Market | Trades | Won | Avg trade | Random day |
|---|---|---|---|---|
| Bitcoin · 4H · 2017-2026 | 38 | 68% | +0.28% | −0.22% |
| US large caps (50) · 1D · 2016-2026 | 266 | 55% | −1.70% | −0.83% |
Verdict: CautionBeat a random entry in some markets, not in others.
pattern +10%random −8.3%
pattern −452%random −220%