How to Detect Fakeouts

Breakouts are popular among forex traders.

It makes sense right?

When price finally “breaks” out of that support or resistance level, one would expect the price to keep moving in the same direction as the break.

There must have been enough momentum building up in order for price to have broken out of the level, right?

It’s time to hop aboard that train. It’s all smooth sailing now. All you have to do is just wait for it…

Yes, wait for it…

Fakeout Example: 10 EMA resistance appears broken

Wait for it… Just a few more moments… To see price inch one direction… Then suddenly move miles in the opposite direction!

Fakeout example: 10 EMA resistance fakeout

Huh?!? What the heck?! What happened to “the bread and butter and the end of world hunger” strategy?

End of story: You are left eating ketchup packets and crackers like Tom Hanks in The Terminal.

Support and Resistance Levels Are Tricky

One thing you should remember to note about support and resistance levels is that they are areas in which a predictable price response can be expected.

Support Levels

Support levels are areas where buying pressure is just enough to overcome selling pressure and halt or reverse a downtrend.

A strong support level is more likely to hold up even if the price breaks the support level and it provides traders a good buying opportunity.

Resistance Levels

Resistance levels are just like support levels but work in the opposite way. They tend to halt or even reverse uptrends.

Resistance levels are areas in which selling pressure is just enough to overcome buying pressure and force price back down.

Strong resistance levels are more likely to hold up even if the price temporarily breaks the resistance level and it provides traders a good selling opportunity.

In the next section, we will dive deeper into fakeouts and discuss why we should trade them and how to profit off them.

It’s not enough learning about breakout strategies because there will be times that breakouts FAIL. We have to know what to do in case of fakeouts.

This is part of your Jedi forex training. To be a Jedi master, you must be able to master fakeouts.

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