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The "Dead Cat Bounce": Opportunity or Trap? 💣💰

The price of Bitcoin fell from a high of $66,971 in November 2021 to $17,360 in mid-June 2022.

On Tuesday, June 21, 2022, it suddenly rebounded to $21,607, which many saw as a sign of an imminent recovery. Some even decided to invest a little, given Bitcoin's previous success.

However... the next day it quickly fell back to $19,908.

What is a Dead Cat Bounce?

This is a phenomenon that occurs when an asset that has fallen sharply appears to be rising quite quickly, when in reality it is dead. It is generally just a pause in the downtrend and is a precursor to an even greater fall.

It often happens when traders are desperate to get out of a losing position. When the price starts to rise, these traders sell their positions to avoid losing more money. This causes the price to rise even further, which can attract other traders who believe that the uptrend has begun.

Why Do You Need to Understand It?

It can be a trap that is quite easy to fall into if you are not familiar with the term and allow yourself to be overcome by the feeling of "success" by opening long positions.

In most cases, we can only confirm a dead cat bounce after it has happened. This means that we need to be very attentive to our diagnostic tools and be in constant interaction with our community, analyzing news in real time, so as not to fall into speculation without optimal results.

As you already know, taking care of your capital by risking only what you can afford and identifying the right time to buy and sell are basic notions in any situation.

But there is something else that we can specifically recommend in these cases, and that is that if you decide to invest and you are lucky enough to make a quick profit, the best thing to do is to secure it and withdraw.

In the best case scenario, you will be able to continue participating soon if there is really an upward trend. If not, you will have ended up with a small percentage of profit that puts you in a more favorable position than before.

Thank you for accompanying us in today's article!

Do not forget to comment your recommendations for future posts and leave us any questions or doubts that we can help you with.

Let's keep working towards our goals with all our energy because every step counts.

Until the next post!


For this article, prompts have been used to request information

interpreted and provided by AI (Google Bard). Written and edited

by Kevin David Terán and verified by Pedro Arizaleta and Erwin Sánchez



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