Educational Post
What is a Fakeout?
A fakeout is a term used in technical analysis (TA) that refers to a situation where a trader enters a position expecting a price movement that ultimately doesn’t happen. In fact, in most cases, a fakeout is used to refer to a situation where the price goes in the opposite direction of the trade idea or signal.
A fakeout may also refer to a “fake breakout,” or false breakout, where price breaks out of a technical price structure, only to reverse shortly.
A fakeout can amount to a considerable loss. Technical analysts may identify a pattern that fits perfectly with their strategy, and looks to be playing out as expected. However, the price may reverse very quickly due to outside factors, and the trade can quickly turn into a hefty loss. As such, in anticipation of a fakeout, many traders will plan their exit strategy and put on stop-loss orders in advance of entering trades. In fact, this is quite a common strategy for basic risk management.
What is a Breakout?
A Breakout is a term used in technical analysis (TA) That refers to a situation where a trader enters a position following the situation where the price goes along the direction of the trade idea or signal.
In this scenario, candles close above the resistance level.
A Breakout is followed by a retest of this resistance level typically signals bullish momentum.
At the successful retest of level, a trader can enter a trade.
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This is not a investment advice. DYOR
