Falling Knife

If you like to catch falling knives, you might need a good surgeon with plenty of stitching thread to accompany you.

The term falling knife (also known as "Catching a Falling Knife" or "Catching the Bottoms") refers to the action of buying an asset which is rapidly declining in price.

However, trying to catch a falling knife is undoubtedly a very dangerous endeavor and, in reality, most knife-catching attempts fail and often result in significant losses.

Examples

When the dot com bubble started to burst in 2000, and the prices declined 50-60%, many traders started to “grab good deals” and buy shares of Internet companies, anticipating a sharp reverse and huge gains. A few weeks later the bubble popped completely, and most of the alleged “good deals” became worthless.

In December 2017 Bitcoin sharply dropped from $20,000 to $17,000 and many people saw it as a chance to get in and started buying in anticipation of potentially new highs. A few days later the price landed at $10,000 level, marking a -35% from what had been initially considered as a “good deal.”

These are two primary examples of knife-catching failed attempts, which certainly caused big financial losses to many traders and investors worldwide.