What a Dead Cat Bounce can nean for investors
A dead cat bounce is a special type of investment opportunity that many investors don’t take advantage of. Finding the trends in the market shifts can help you find smaller timeframe investment opportunities that take advantage. Many times these dead cat bounce investment opportunities are overlooked due to the volatile nature of where you are putting your money.
We are going to look at what a dead cat bounce is, and what it can mean for you as an investor. Don’t be scared of a dead cat bounce, take advantage of it, click here to learn more:
Identify the Dead Cat Bounce
The first thing you have to do is identify the dead cat bounce. So, what is it? It’s a period of huge falling numbers in a stock that is followed by a few small jumps in stock value. Those jumps in stock value are the dead cat bounce we are looking for. It can happen throughout a variety of timelines, but the rules tend to stay generally the same. Once you identify them, you have to make a choice. Is the third bounce going to be profitable, or is it going to fail?
That third bounce is extremely important to identify. The reason being is that dead cat bounces normally come in three. That means if you buy in during the second boost in stock value, you are basically hoping for a successful investment. Normally, that second bounce tends to be a small boost that leads to another dip. If you buy in during the second bump, you might be looking to hang on to the stocks in the hopes for a bounce back as it falls.
Instead of jumping in too early, wait for the third bounce that you know is coming. After you see that bounce, try to aim for gains.
Where Should You Aim You Gains?
The health of your dead cat bounce investment really depends on how you approach the investment itself. You can really take two routes: a stop-sell or a sliding scale.
When you are looking at the stop-sell method of investing in a dead cat bounce, you are looking to a specific price point you want to sell at. Let’s say you see that last dip start from $3 a share, and has seen dips and raises of $0.50 in 3 day periods, but the initial fall started at $5. You should try to buy in under $3 as it starts to go back up towards that fall. The goal should be to get your investment back to that $3 mark on your dead cat bounce. Once you hit that hard stop, you will sell no matter the strength of the growth of the stock is. If you are a little bit worried about the potential for dead cat bounces to bite back, this might be the strategy you want to take with your investment. It tends to be a little safer because it gives you a set goal of profit.
If you are looking to make as much as possible off of your dead cat bounce investments, you might want to look into setting yourself up with a sliding scale one your investment. If you buy in on an upswing, you want to set a floor that is just above your buy-in. As you start to see value building in the stock, you slide your ceiling and the floor up with each other. If you hit the ceiling you would have sold at with a hard stop style, you keep holding to ride the value out. Keep the same distance between your floor and your ceiling as you ride the value train. No matter what, even if you drop out to that new floor, you are bringing home more money than you entered with. Putting this sliding scale in place lets you really get the most out of your investment. Sometimes there will be moments that the stock dips down after a long period of growth, but doesn’t quite hit the floor before going back on another value growth session.
If you end up investing in the golden stock that takes you from a dollar of growth to hundreds of dollars of growth, make sure you are adjusting your scale with growth. A stock worth $300 a share shouldn’t be treated with the same scale as a stock worth $3 a share.
Cut Your Losses, Enjoy Your Gains
It’s no secret that investing in a dead cat bounce can be risky. If the bounce never happens, you are just losing money. If you buy in at the wrong time, you might not be able to make as much as possible from the dead cat bounce investment.
With that being said, there are a few rules of thumb that you need to keep in mind when you attack a dead cat bounce. The most import piece of information you need to keep in mind when you attack a dead cat bounce is it’s ok to cut your losses. Don’t hold on to a dead cat if it’s not going to bounce back for you.
Sometimes you even sell before you should have, but it’s all about the perspective you have on your investment. If you happen to sell at a higher value than you bought in for, you made money. Even if you sell on a stock that ends up making people filthy rich, you can’t dwell on it. Dwelling on money that’s in the past is a great way to miss an opportunity in the future.
So What Does A Dead Cat Bounce Mean to Investors?
To many investors, a dead cat bounce is the final sign it’s time to let go of the float shares you are holding and look onward to the next investment. To the savvy investor, the sight of a dead cat bounce is a thing of excitement. It’s a chance to make small jumps in wealth by abusing market trends.
By abusing the trends in the market, you can start to build wealth that can move around. Create a dead cat bounce account for yourself. Use it to buy in on dead cat bounces, and try your hand making growth through “failing stocks.”
Do you go for dead cat bounce investment opportunities? What is the secret to making it work for you? Does it come down to entry price, or does it come down to share control? Share your tips for the dead cat bounce hunters like you in the comments below.