A fakeout occurs when a price breaks out of its current pattern and starts to move in one direction only to move drastically in the opposite a few moments later. These movements happen unexpectedly and suddenly, or do they? If it was possible to predict that a fakeout was about to occur, you could easily avoid losing money. Or even better, if you were on the right side of the fakeout, you could even make money. Let’s look at this in a bit more detail.
The first step to trading fakeouts is to know just where they can occur. They are best traded when there is space between the candlestick chart and the trend line as well as when the Elemental Trader alerts you. This would make it look like a breakout was beginning, but stalled out. It is right at the stalling point that you want to initiate your trade. If the breakout is not strong, it is most likely going to be a fakeout, so you should prepare to trade it as such.
The downfall of trading fakeouts is that they require constant supervision of a price chart. You cannot spot fakeouts as long term trading trends, they happen suddenly, and if you are not a day trader, you should probably not try and trade them. Fakeouts can occur on longer term charts as well, but they are much harder to detect as this information is not updated by the minute as day traders’ charts are. If you are a day trader and monitor charts constantly, making a move to trade these fake breakouts can be extremely lucrative.