Despite the potential for high returns, investing in cryptocurrency can also be a risky endeavor. One common threat for traders to watch out for is a fakeout – read on to find out what exactly this term means.
What Is A Fakeout?
The most common fakeout definition refers to a phenomenon in technical analysis where a trader takes a position anticipating a certain price movement, which ends up not happening and instead goes in the opposite direction.
The fakeout term can also refer to a scenario where the price of an asset suddenly spikes or drops, only to revert back to its original state within a short time frame. This sudden movement can often be due to market manipulation, with users artificially inflating a crypto’s price through coordinated buying or selling.
What You Need To Know About Fakeouts
Fakeouts can have a significant impact on an investor’s portfolio, with many individuals being caught off guard and losing a substantial amount of money as a result. What’s more, predicting a fakeout can be challenging, as it often involves market manipulation and is influenced by a variety of factors.
However, there are a few effective strategies you can implement:
- Monitor volume. Paying attention to the volume of trades behind a price movement can provide valuable information about the sustainability of a trend and whether it is a result of a fakeout.
- Analyze market sentiment. Following the overall market sentiment and looking for signs of excessive bullish or bearish movement can help identify potential fakeouts.
- Use technical analysis. Incorporating TA tools such as trend lines, support and resistance levels, and candlestick patterns can help traders identify potential fakeouts.
- Stay informed. Keeping up to date with news and events related to the market and individual cryptocurrencies can help investors spot any potential false narratives that may be driving a fakeout.
By taking these risk management steps, you can minimize your risk of being caught in a fakeout.
