Cover On A Bounce

AAA

DEFINITION of 'Cover On A Bounce'

The covering of a short position after it has reached and bounced off a level of support. This strategy waits for the price to move to a support level, instead of selling before, to see if the level will hold - because the trader will benefit if it doesn't hold. Once the security bounces, it is clear the security will have trouble moving down further, so the trade covers the short position.

INVESTOPEDIA EXPLAINS 'Cover On A Bounce'

Levels of support act as a backstop to a further move downward in price, but can sometimes fail to hold. If a security falls below a support level, it will often lead to an even stronger downward move as the level is taken out. The trader waiting for a bounce is betting that the support level will not hold and they will benefit if this materializes.

RELATED TERMS
  1. Exchange Rate

    The price of a nation’s currency in terms of another currency. ...
  2. Forex - FX

    The market in which currencies are traded. The forex market is ...
  3. Pip

    The smallest price change that a given exchange rate can make. ...
  4. Support (Support Level)

    The price level which, historically, a stock has had difficulty ...
  5. Currency Pair

    The quotation and pricing structure of the currencies traded ...
  6. Cover On Approach

    The closing out of a profitable short position as the security ...
Related Articles
  1. How can I trade in cross currency pairs ...
    Forex

    How can I trade in cross currency pairs ...

  2. What am I buying and selling in the ...
    Forex

    What am I buying and selling in the ...

  3. Forex Tutorial: The Forex Market
    Forex Education

    Forex Tutorial: The Forex Market

  4. Correction-wary? Consider These Dividend ...
    Chart Advisor

    Correction-wary? Consider These Dividend ...

comments powered by Disqus
Hot Definitions
  1. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  2. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  3. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  4. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  5. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
  6. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
Trading Center