Introduction
Forex fake outs are a type of forex trading strategy that involves the trader placing a large order on the market, which is then filled at a lower price than expected. A well-designed forex fake out strategy can be used to make profits when other traders have poor expectations about the direction of the underlying currency pair.
What is a forex fake out?
A forex fake out is a false breakout, which occurs when a market reverses direction and moves in one direction. This can be done several ways:
False breakout - The market moves in one direction, then reverses to go back to the original price action.
False breakdown - The market breaks down from an established support level, but does not continue lower as expected by traders. Instead, it rebounds higher than where it started at (which means it was not a true break down).
False trend continuation - The upward trend continues after breaking through resistance levels like 50% Fibonacci retracement levels or 200 day moving averages
How to trade a forex fake out
The first step to trading a fake out is to look for a false break out after a strong move in the opposite direction. You will see this happen when price breaks out of its range and then reverses back into that range before finding support or resistance at something new.
Tips for trading a forex fake out strategy successfully
Use a trading plan. It’s important to have a basic strategy in place before you start trading, and if you want to be successful with this strategy, it helps to have one that is well thought out and made sure of its effectiveness (and doesn't leave room for error).
Use a stop loss. Stops are used as an emergency measure when things get out of hand or if there is any doubt about whether or not the market will continue falling further in price at all levels. By setting up regular stops, you can avoid having too much money tied up into losing positions while still being able to take advantage of opportunities when they arise again later on down the road after another sharp decline has occurred which might cause many investors' funds all at once without warning.
Make sure your risk/reward ratio looks good enough before getting started with any kind of trading activity whatsoever; otherwise forget about ever making any profits whatsoever because no matter how careful we may try ourselves towards being careful enough during our time spent investing online, we'll still end up losing everything eventually anyway due something else happening unexpectedly somewhere else along this journey called life itself.
Conclusion
This strategy is a real winner. It’s simple and easy to implement, it can be used on almost any brokerage platform and it’s very easy for new traders to understand.
Use this strategy when you want to take advantage of the fact that there is no difference between international stock exchanges (IS) and Forex trading platforms (FX). It works because not many people know about this tactic or realize that there are similarities between them.
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