Falling Knife

A term that refers to a security whose price has fallen sharply in a short period of time. Sometimes a declining market is also referred to as a falling knife.

An old adage on Wall Street goes, “Don’t try to catch a falling knife”, which means don’t try to buy into stocks that are falling sharply hoping for a turnaround. Sometimes that would work, but you would need to carefully research the stock since in many cases, a stock goes down for a reason. Many stocks that fall sharply never recover, and some just go on to bankruptcy. Investor caveat.

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