A falling knife refers to the rapid decrease in the price of any given asset. Under such circumstances, experienced traders prefer holding off their purchases, until the price touches rock bottom. Once the falling knife reaches the far bottom, there are instances of sudden rebound which is known as a whipsaw.
Implementing better trading strategies, a falling knife can make riches overnight. Although the risk and reward associated with fall knives are often higher. Catching a falling knife can be a calculated gamble. While you might get a cut from the process, it also holds the story of rags to riches.
There can be a plethora of reasons behind the falling knife. For instance, an economic breakdown, losing the support and resistance levels as well as circulation of bad news about the given company in the market.
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