Also called “Catching a Falling Knife” or Catching the Bottoms”, the Falling Knife pertains to the action of purchasing an asset which has a falling price.
This is supported by the assumption that one would be able to predict the bottom of the declining price prior to a “Dead Cat Bounce” or a Price Reversal. Should the trader prove to be successful in “Catching the Knife” the purchase of the asset near its recent bottom would mean that good profit might be on the way.
It must be noted however that attempts at “catching a Falling Knife”, is no doubt, a dangerous undertaking. More often than not, the strategy fails and results into significant losses.