Summary: Trading Fakeouts
Institutional traders like to fade
breakouts. So we must like to fade breakouts also.
Are you going to follow the crowd,
or are you going to follow the money?
Think, act, eat, sleep, and watch
the same movies as these guys do. If we can trade in the same way the
institutional players do, success is just a glimpse away.
Fading breakouts simply means
trading in the opposite direction as the breakout. You would fade a breakout if
you believe that a breakout from a support or resistance level is false and
unable to keep moving in the same direction.
In cases in which the support or
resistance level broken is significant, fading breakouts may prove to be
smarter than trading the breakout.
Potential fake outs are usually
found at support and resistance levels created through trend lines, chart
patterns, or previous daily highs or lows.
The best results tend to occur in a
range-bound market. However, you cannot ignore market sentiment, common sense,
and other types of market analysis.
Financial markets spend a lot time
bouncing back and forth between a range of prices and do not deviate much from
these highs and lows.
Finally, the odds of a fake out are
higher when there is no major economic event or news catalyst to shift forex
traders’ sentiment in the direction of the break.
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