WEBVTT 00:02.870 --> 00:05.220 And this video dead cat bounce. 00:05.240 --> 00:10.620 Trading strategies so the phrase dead cat bounce. 00:11.650 --> 00:18.100 Comes from the idea that even a dead cat will bounce if the market falls quick enough. 00:18.250 --> 00:22.500 And this is simply because we can't go down forever. 00:22.690 --> 00:24.570 But you need a massive sell off. 00:24.580 --> 00:30.460 To have this phenomenon happen typically you'll get a bit of a bounce and then perhaps some continuation 00:31.840 --> 00:38.590 if you lose say 15 percent in one day it's it's impossible to keep going down like that. 00:38.590 --> 00:43.390 Eventually there will be short sellers taking profits. 00:43.390 --> 00:47.740 There'll be people jumping in trying to pick up the stock on the cheap kind of thing. 00:47.830 --> 00:58.530 But if the negative momentum continues you can get continuation at the very least you can get a retest 00:58.530 --> 01:04.680 of the lows in front of you I have a chart that shows two of my favorite strategies for dealing with 01:04.680 --> 01:07.340 dead cat bounces when it comes to day trading. 01:07.440 --> 01:13.800 Now I'll bring your attention to the gap lower the kick off the day here on the 25th. 01:13.800 --> 01:21.210 As you can see on the chart we just fell apart so there's a couple of things that you need to pay attention 01:21.210 --> 01:21.930 to. 01:21.930 --> 01:29.760 First thing you have to ask yourself is have we passed any major previous resistance. 01:30.070 --> 01:32.390 And we did in the form of this gap. 01:32.500 --> 01:36.600 So obviously this gap should translate into resistance again. 01:36.610 --> 01:38.760 Now that we've broken through it it should have been support. 01:38.770 --> 01:40.790 But you can see that did not happen. 01:42.020 --> 01:48.450 So a couple days later in that same area you can see that we rolled over. 01:48.530 --> 01:54.470 And at this point you have to ask yourself OK so what was the clue. 01:54.500 --> 02:02.660 Well the clue was this area and this massive scandal here it isn't quite an engulfing scandal but it 02:02.660 --> 02:09.770 most certainly shows an extremely long red candle and bearishness and in fact we went right back down 02:09.770 --> 02:12.270 to the lows a few cents or so. 02:12.290 --> 02:15.380 So that's the first way you could have played this you could have just noticed. 02:15.380 --> 02:16.280 Where do we blow through. 02:16.280 --> 02:21.150 Because it's difficult to jump into this market here Frank. 02:21.160 --> 02:27.100 You can almost always count on losing money but you recognize this gap and you recognize that it could 02:27.100 --> 02:30.540 give you an opportunity and you got it there. 02:30.550 --> 02:37.240 And in fact you could have even entered from this candlestick if you gave it enough of a stop loss perhaps 02:37.240 --> 02:38.320 above the top of the gap. 02:38.320 --> 02:43.600 So either one really would have worked but once we rallied and tried to take this out and then failed 02:43.600 --> 02:46.180 again that was a sign that you're going to get lower. 02:46.180 --> 02:51.730 So you're short on that candlestick and for the rest of the day the market does nothing but fall. 02:51.730 --> 02:59.970 That's one way you can play these another way of course is using a Fibonacci retracement tool and you 02:59.970 --> 03:10.280 can see that the same reversal with candlestick here and this gap lined up quite nicely with the 50 03:10.280 --> 03:14.490 percent Fibonacci retracement. 03:14.640 --> 03:20.520 The main takeaway from this should be be very patient look for an area that makes a lot of sense to 03:20.520 --> 03:23.550 cause problems for the bounce. 03:23.580 --> 03:28.100 And this typically means at least in day trading that it's it's actually a trade. 03:28.110 --> 03:29.570 You take several days later. 03:29.580 --> 03:30.960 That's that's very common. 03:30.960 --> 03:35.790 Because it's it's really rare that you're going to fall like that and then turn around and bounce right 03:35.790 --> 03:37.890 back up there on the same day. 03:37.890 --> 03:43.950 If you do then you have an extraordinarily volatile market that you should probably stay away from but 03:43.980 --> 03:46.900 a bounce like this is very sustainable. 03:47.160 --> 03:56.100 It's very reliable in the sense that eventually it will roll back over and once it does it should at 03:56.100 --> 04:05.570 the very least try to test this bottom trading dead cat bounces is a bit difficult on the short term 04:05.570 --> 04:06.120 chart. 04:06.260 --> 04:14.820 And that's another reason why you need to be so patient you could even make an argument for a downtrend 04:14.820 --> 04:18.460 line there that we had tested and failed at because there were three heads. 04:19.180 --> 04:23.940 It's a little bit of a stretch but if you can find one that's a good way to look at this as well.