Fakeout
A fakeout is a market situation in which a movement or signal foreshadows a certain trend that will later be rejected or falsified.
A fakeout can occur following a false breakout of a support or resistance level, which has convinced investors to sell or buy an asset respectively. In this case, the fakeout is a false breakout: the price only momentarily crosses the level, reversing almost immediately; this then causes financial losses or missed gains for those who do not recognise it.
A fakeout can occur in any financial market, from forex to cryptocurrency. Fakeouts usually signal that the market trend does not have sufficient volume to consolidate or change.
Although they may share common characteristics, fakeouts should not be confused with Bull Traps and Bear Traps.Â
Fakeouts generally indicate any disappointment of a trader’s expectations, not only bullish or bearish. Moreover, in fakeout situations, investors usually act in advance of price movements, before they occur, based on forecasts; on the other hand, during Bull Traps and Bear Traps, the change in trend is already in place and observable.
There is no precise strategy for accurately recognising a fake out. Many investors, however, rely on technical analysis tools such as volume analysis, moving averages or oscillators to distinguish them from actual breakouts.
