This chart shows a common trading strategy in financial markets (such as Forex or equities): identifying a fakeout and profiting from it. A fakeout is when it appears price has broken a support or resistance level, then suddenly reverses and moves the other way, catching traders who entered on the breakout.
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1. Clean bullish move
At the start of the chart we see a series of green candles indicating a strong, steady upward move.
This move builds market confidence and serves as an initial sign of bullish strength.
2. Support & resistance
Support: a price level expected to stop declines and cause a rebound. In the chart it’s the lower horizontal line.
Resistance: a price level expected to halt advances and cause a decline. In the chart it’s the upper horizontal line.
These zones represent important psychological and technical levels for traders.
3. The breakout
After the bullish move we see a large green candle breaking above the resistance line. This is called a breakout.
Under normal conditions, a breakout above resistance is a strong buy signal, as continued upside is expected.
4. The fakeout
Here’s the crucial part: after the breakout, instead of continuing higher, price suddenly begins to fall.
That is the fakeout — traders who bought the breakout are deceived because price returns downward.
The chart shows this with a red downward arrow labeled “FAKE OUT”.
5. Liquidity area
The pink shaded area above the resistance line is the liquidity zone.
In market analysis, a liquidity zone is where traders leave orders (such as stop losses or take-profits). When price moves into this zone it can “collect” those orders and then reverse.
In many fakeouts, price targets this area to gather liquidity before reversing down.
6. Price returns to the area
After the fakeout, price returns to the support or the previously broken resistance.
This return confirms that the breakout was false rather than real.
7. Entry areas
Risky entry area: near the peak of the fakeout. Entry here is risky because price may remain unstable and continue to move against you.
Safe entry area: on the return to the former support (or previous resistance). Entering here is safer because you’re waiting for confirmation of the reversal.
8. Clean bearish move
After entering safely near the support, we see a series of red candles indicating a strong, steady downward move.
The goal of the fakeout strategy is to enter the confirmed reversal and capture this clean bearish move.
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Strategy summary
1. Watch the bullish move and the resistance level.
2. Wait for a breakout above resistance.
3. Observe whether price continues up or returns down (fakeout).
4. If a fakeout occurs, wait for price to return to the support area.
5. Enter a short at the safe entry area.
6. Target the clean bearish move for profit.
This strategy requires patience and careful monitoring to avoid falling into market traps.
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