The term "Falling Knife Pattern" is used to describe a sharp drop in a stock or other asset, but there is no specific magnitude or duration to the drop before it constitutes a falling knife. A falling knife is generally used as a caution not to jump into a stock or other asset during a drop.It's important to remember that when prices are dropping quickly, even if they have only fallen by a small percentage, it may be indicative of further drops to come. This is especially true if the fall in prices follows an extended period of gains and investor sentiment has shifted from bullishness to bearishness. In these cases, it can be very risky trying to catch what could turn out to be an ongoing downward trend.In the below Diagram we can see how the Falling Knife Pattern is look like.Of course, there are no guarantees in the markets and sometimes stocks will rebound after briefly dipping below key support levels. So always do your own research before making any investment decisions.
