Fakeout
19 hours agoA fakeout refers to a false breakout that happens when the price moves beyond a chart pattern but then quickly returns inside it. This phenomenon is also referred to as a “false breakout” or a “failed break.”
When the price eventually “breaks” out of a chart pattern, which essentially represents a support or resistance level, it is generally expected that the price will continue to move in the same direction as the breakout.
If a support level is breached, it indicates that the overall price trend is downward, leading traders to be more inclined to sell rather than buy. On the other hand, if a resistance level is surpassed, the market sentiment shifts towards the belief that prices are likely to increase further, prompting traders to buy instead of sell.
However, the reality is that most breakouts tend to FAIL. Potential fakeouts are often identified at support and resistance levels established through trend lines, chart patterns, or previous daily highs or lows.
Fakeouts can result in considerable losses, which is why it is essential to always use stop losses to manage risk effectively.
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