✅ When to Use The Gap Fade / Dead Cat Bounce Strategy
The Gap Fade / Dead Cat Bounce Strategy applies to stocks gapping down -5% or more at the open, often after bad news, poor earnings, or dilution. It seeks to exploit overreaction or short-term exhaustion.
⚙️ Core Rules
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Look for stocks gapping down significantly on news
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Entry 1: Gap Fade → Short after failed bounce / lower high
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Entry 2: Dead Cat Bounce → Long on quick reversal bounce
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Use VWAP and key levels as guides
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Tight stop: Previous high or low depending on the setup
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Partial profit near intraday VWAP / key resistance
🎯 Main Objectives of The Gap Fade / Dead Cat Bounce Strategy
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Catch a fade toward VWAP (short) or a reflex bounce (long)
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Profit from emotional reactions and retracements
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Works best in first 1–2 hours of trading
🧠 Mindset
Patience is key—let the setup form. Don’t short into weakness or long into freefall. Wait for confirmation: a weak bounce to short, or capitulation volume to long.
⚠️ Risks
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Sudden news reversal or buy-the-dip crowd
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Strong support/resistance from prior days
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Holding too long in a countertrend move
🔗 Where to Use It
Use this strategy in The Next Trading Day under category:
📉 Gapper Down → Gap Fade / Dead Cat Bounce