You know that feeling when you have been working for hours and then you look up on the office clock and it is only 10 o’clock. And you came in an hour ago. Disappointed? Well, yeah! You have just experience what I like to call a fake work day.
And imagine my frustration when something similar happens to me when I am trading. I look at the chart and the price is growing nice and strong. Here it is climbing higher than resistance level. But NOOOOO! It is falling down! I have been bamboozled by a fakeout.
What is a fakeout? A fakeout is a love child of fake and breakout. To put in in serious words it is what happens when the price if trying to fool us and retreats right after going a little bit higher than the resistance level or lower than support level.
The support level fakeout happens when there are two forces struggling: buyers and sellers. And for a moment buyers are winning, but selling is just stronger. Buyers are creating enough pressure in order to halt the selloff and down trend, but eventually they fail.
Resistance is just like that only reversed. Uptrend is halt by sellers, but eventually byers are showing their strength. In these cases both of the levels can be breached for a short period of time only to go back to the regular trend.
But do not fret. It is possible to turn fakeouts to our advantage. How? Stay with us for the next couple of lessons and we are going to find it out together!