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Falling Knife

The term "falling knife" is a situation where the price of a particular asset, such as a stock or a cryptocurrency, rapidly declines in value over a short period. It is often used to describe a security whose price is in a freefall, and investors are wary of catching it as it falls further.

What You Need To Know

Investing in a falling knife can be highly risky because there is no clear indication of where the asset's price will bottom out. Attempting to catch a falling knife means buying the asset at its current declining price with the hope that it will rebound, but this strategy can lead to substantial losses if price keeps falling.

Investors and traders use the term "falling knife" as a cautionary metaphor to remind others of the potential dangers of trying to time the market or speculate on assets in a downtrend. Instead, prudent investors often wait for signs of stabilization or a clear reversal pattern before considering an entry point in a declining asset.