How to Trade Fakeouts?
1 min read
Trading breakouts from a consolidation pattern is one of the most popular and most profitable trades that a trader can make. It is fairly easy to spot a consolidation pattern and to spot the resistance level that everybody is watching. If not a round number there will be a minimum of one, if not many, highs at an equivalent level.
As soon as price crosses the road there is a tremor of pleasure. Conditional buy orders placed in anticipation of a breakout are triggered. Traders watching their screens notice the activity and send a flood of latest buy orders; everyone hopes to urge on board before price rallies too far above the former resistance levels.
Professionals devour on what is happening and begin shorting the stock. The rally fizzles and the punters are left high and dry. Price retreats back below the new price, formerly resistance and triggers their stops. A fresh round of selling ensues because the punters struggle to clear their positions. The professionals cover their short positions and head home having made a tidy profit for a couple of hours work. It’s a hard game — one have got to measure by his or her own wits — but the rewards are big.
