Cover On A Bounce

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.

BREAKING DOWN '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. Pip

    The smallest price change that a given exchange rate can make. ...
  3. Cover On Approach

    The closing out of a profitable short position as the security ...
  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. Forex - FX

    The market in which currencies are traded. The forex market is ...
Related Articles
  1. Forex Education

    Forex Tutorial: The Forex Market

    In this online tutorial, beginners and experts alike can learn the ins and outs of the retail forex market.
  2. Chart Advisor

    Breakout Opportunity Stocks: CPA, GNRC, WWE

    After a period of contracting volatility, watch for breakouts and bigger moves to come in these stocks.
  3. Chart Advisor

    Stocks With More Upside Due to Bear Traps (TAP, SPY)

    A bear trap is a pattern that typically leads to at least a short-term rise in prices. Here are stocks exhibiting the pattern.
  4. Chart Advisor

    Watch For Stock Breakouts Here

    Four stocks with potential breakouts across various time frames and pattern.
  5. Chart Advisor

    Stocks At Buy Points In Healthy Uptrends

    These stocks are in healthy long-term uptrends, and a recent pullback presents a buying opportunity.
  6. Chart Advisor

    Watch These Stocks Closely For a Breakout

    Here are three stocks to watch for breakouts right now.
  7. Chart Advisor

    Four Stocks With Further Downside

    If you're looking for shorting opportunities or a chance to exit a long position, these stocks look like they have further to fall.
  8. Chart Advisor

    Stocks at Make or Break Points on the Chart

    These stocks are at points where short-term momentum could reverse the trend; bulls and bears should be watching these closely.
  9. Chart Advisor

    Triangle Stock Breakouts to Kick Off 2016 (GIS, SEM)

    These stocks are near triangle chart pattern breakout points, presenting trading opportunities to kick off 2016.
  10. Chart Advisor

    Pros and Cons of These Breakout Stocks (FB, IM)

    These stocks are breaking out, or close to it. Here are the pros and cons of trading these stocks right now.
RELATED FAQS
  1. How can I trade in cross currency pairs if my forex account is denominated in U.S. ...

    The forex market allows individuals to trade on nearly all of the currencies in the world. However, most of the trading is ... Read Full Answer >>
  2. What am I buying and selling in the forex market?

    The forex market is the largest market in the world. According to the Triennial Central Bank Survey conducted by the Bank ... Read Full Answer >>
  3. What is Fibonacci retracement, and where do the ratios that are used come from?

    Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician ... Read Full Answer >>
  4. Point and Figure Charting Using Count Analysis

    Count analysis is a means of interpreting point and figure charts to measure vertical price movements. Technical analysts ... Read Full Answer >>
  5. How can a swing trader use a Fibonacci retracement?

    Swing traders can use the Fibonacci retracement to determine levels of support and resistance for a price on a chart, as ... Read Full Answer >>
  6. How can I apply sensitivity analysis to my investment decisions?

    When a stock doesn't reach a lower swing, create a trading strategy by using the previous swing low as a pivot point. If ... Read Full Answer >>
Hot Definitions
  1. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  2. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  3. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  4. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  5. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  6. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
Trading Center