Falling Knife

Definition: Falling Knife

A phrase used for a stock where the price has dropped significantly in a short period of time. A falling knife security can rebound, or it can lose all of its value where the shares become worthless.

Veteran investors will warn: “Don’t try to catch a falling knife”. This happens because investors might see a company they believe in see a very sharp drop in stock price, and expect the stock price to bottom out and start to go back up. However, investors do not know exactly how far a price will fall before it rebounds, so trying to buy a stock with a rapidly falling price is a good way to get cut.

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