Falling Knife

A figurative term used to describe the danger of buying assets when the market price is falling rapidly so as to make profit when the price rises.

A falling knife is a term used to describe the seemingly smart decision to buy an asset when its price falls regularly. The trader’s goal here is to buy the asset when it is very cheap, and sell it later when the price rises. Thus, falling knives are dangerous because the trader’s decision is not based on any technical indicator but ‘common sense’ and emotion which tell them that prices will rise again.

The idea of a falling knife comes from the Wall Street proverb that “If you like to catch falling knives, you might need a good surgeon with plenty of stitching thread to accompany you.” So, a falling knife is ultimately perilous and risky. This is because there's no assurance that the price won't keep falling rather than rebound.

Previous term


Read More

Next term

Fear Of Missing Out (FOMO)

Read More