A dead cat bounce is referred to a short rebound in the market where prices rise for a duration before falling again. In a dead cat bounce, the price of the stock recovers for a short-lived time period when it had been continuously going down. A dead cat bounce is followed by a downward trend again. Short term traders tend to profit from such an increase in the stock. However, it should be noted that the recovery in the stock price is only temporary. Traders can initiate trades during the short rally and focus on sell positions to make profits.
For example, the price of the stock is Rs. 50, now due to a decline in the market the price drops to Rs. 40. Over the next few days, the price of the stock rebounds to Rs. 45. However, due to declining market conditions again the stock goes down to Rs. 35. The part where the stock had reached Rs. 45, i.e. the short rebound in the market is referred to as a dead cat bounce.
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