What Is Fakeout?

Fakout is a phenomenon in which the price of a crypto asset appears to break through an important support or resistance level, but then quickly reverses course, returning to its previous price range.

This condition often fools traders who think that there has been the start of a new upward or downward trend. For example, prices appearing to break above a resistance level may signal the start of a bullish trend , but if the price then falls back below resistance, the initial move was simply a fakeout.

The most common causes of fakeouts include low market liquidity, important news impacting the market, or manipulation by large traders. Therefore, avoiding losses due to fakeouts requires a good risk management strategy, such as using stop-loss orders or waiting for additional confirmation before making a trading decision.

Awareness of fakeouts is very important in trading, as it helps avoid hasty decisions and emphasizes the importance of conducting thorough market analysis.

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