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Educational Post
What is a Fakeout?
A fakeout is a term used in technical analysis (TA) that refers to a situation where a trader enters a position expecting a price movement that ultimately doesn’t happen. In fact, in most cases, a fakeout is used to refer to a situation where the price goes in the opposite direction of the trade idea or signal.
A fakeout may also refer to a “fake breakout,” or false breakout, where price breaks out of a technical price structure, only to reverse shortly.
A fakeout can amount to a considerable loss. Technical analysts may identify a pattern that fits perfectly with their strategy, and looks to be playing out as expected. However, the price may reverse very quickly due to outside factors, and the trade can quickly turn into a hefty loss. As such, in anticipation of a fakeout, many traders will plan their exit strategy and put on stop-loss orders in advance of entering trades. In fact, this is quite a common strategy for basic risk management.
What is a Breakout?
A Breakout is a term used in technical analysis (TA) That refers to a situation where a trader enters a position following the situation where the price goes along the direction of the trade idea or signal.
In this scenario, candles close above the resistance level.
A Breakout is followed by a retest of this resistance level typically signals bullish momentum.
At the successful retest of level, a trader can enter a trade.
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This is not a investment advice. DYOR
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EDUCATIONAL POST
What is Market Momentum?
The term market momentum refers to the ability of a particular market to maintain a continuous increase or decrease in price within a certain timeframe. Essentially, market momentum is what creates a market trend. Since the market momentum is a result of the variations in the market price of an asset, it also reflects the current market sentiment.
As such, market momentum can be used in technical analysis (TA), helping traders identify trading opportunities. These opportunities may arise during bullish or bearish trends (when market momentum is getting stronger) or during reversal points (when market momentum is getting weaker).
However, market momentum is not only related to the price changes but also to the trading volume. This means that high volumes of trading activity indicates a stronger market trend and, thus, a stronger and more reliable market momentum.
Many traders and chart analysts make use of TA indicators to measure market momentum and try to spot possible market trends.
Some examples of these tools include the Relative Strength Index (RSI), the Stochastic RSI, the Volume Weighted Average Price (VWAP), and the Moving Average Convergence Divergence (MACD).
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