Sunday, June 22, 2014

Dead Cat Bounce Pattern

Dead Cat Bounce Pattern is an event-based pattern, usually occurring after a large decrease in price caused by a news event. After the event-driven price decline, the price will :bounce" a small amount, before resuming its down trend. The larger the decline due to the news event, the larger the Bounce.
Success Rate: 90%, a very reliable pattern.

Duration: 92% are over in 4 days. Th average Bounce has reversed in 2 days.
Volume: Volume during the Decline event can be expected to be massive depending on the severity of the news event. Heavy Volume will continue during the Bounce.

Risks: Quick action is the key to controlling risk with this pattern, since most of these patterns have finished bouncing to the upside after 2 days.

Trading the Pattern: Traders may choose to play a quick bullish bounce immediately after the news event, or they may choose to go short directly after the Bounce. 

The average Bounce gain is 19% of the decline from the news event.
Dead Cat Bounce Pattern

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