The fake - King of entry opportunities!

Most experienced traders know this, but it still catches them out and frightens the wits out of rookie traders, and that it that an aggressive move against the prevailing trend is more often than not the very best place to jump in on a move, with minimal risk if the timing is right. The problem with this is that because of our inbuilt fight or fright mechanism, this sudden, often violent move will frighten many traders away from taking a trade at the very moment when they are being presented with a golden moment to buy or sell. So next time you are itching to get into a move, and the price suddenly moves violently in the opposite direction for no apparent reason, get ready to strike, because if it is a fake, the move back into the prevailing direction will often be as violent as the counter move as traders around the world, recognizing the fake for what it was, jump into the market.

How do you know how deep the fake will be?

You don't need to know. Enter on the correction or leave a pending order at a strategic point. Often, a fakey precedes a trend change, called in Japanese a Hikkake (Google it)

thanks

Hi Cat

I don't quite understand if you are saying to enter in the direction of the new abrupt movement because it could be a signal of a change of trend, or against it, because it is a fake?

Thanks Puma

The best entry is with 2B. Conditions for this strategy:
-the price move is losing momentum;
-strong support or resistance level is near;
-market is oversold or overbought.
Sell 1 pip below the previous swing high (for short) or buy 1 pip above the previous swing low (for long). The initial stop is 2 pips beyond the extremum reached during the false breakout. Risk/reward is very good. You can catch the entire new trend.

Hi Puma,

A fake is very often a clear signal to you, the trader, that the price is about to move, maybe dramatically, in the direction you were hoping it would, that is, in the opposite direction of the fake. So for example, you or I might feel our charts are looking very bullish indeed, and we may have our signals just screaming at us to buy, which we do. The price may then move say 10 or 15 pips in our direction or it may do very little, and then wham, it shoots dramatically against us, either frightening us into closing out our trade for a small gain or loss, or taking out out the stop loss if it is too tight. Then, suddenly, it stops, hesitates a little, and then moves back, often aggressively, in the original direction, whilst we sit, like rabbits caught in the headlamps, as it races off without us - we have all, and I mean all, experienced this, right? Now the correct play is to anticipate this by either waiting for it or by setting our stop loss wide enough not to be caught out. So how wide to leave it? Well, we can never know, but if you use overly tight stop losses, you are going to get stung by these fakes time and time again. It is very difficult for me to explain exactly how to anticipate these aggressive movements in the opposite direction we are expecting, but with time spent watching price action it is possible to begin to anticipate them, and/or recognize them for what they are, and if you do, then they are a brilliant place to enter a position with minimal risk.

So Puma, simply put, you trade against the fake once that fake, by way of perhaps a moving average, trend line, fibonacci level, or price action, has exhausted itself. You have to have balls to trade these, because the natural tendency is to stay clear of this kind of volatility, but that can be bitterly regretted as the price moves off without you on board, which believe me, is extremely frustrating.

Attached is a screen shot of today's EUR/JPY, my favorite pair to trade, showing two fake opportunities to go long today. I've taken out some of my MAs to simplify the shot. The orange dotted line is the 100 simple moving average which is rising up and supporting the upward momentum. I knew I wanted to go long this morning, but because the price was really flat, I waited for an aggressive move back towards the 100sma. I use multiple time frames, and so entered this position, the green arrow on the left, on a 1 min time frame using a 15 pip stop loss, which proved to be more than enough. I'm now holding this through the night as the eur is looking very strong.

http://uk.mg40.mail.yahoo.com/ya/dow...d=YahooMailNeo

Tuesday morning, and euro has come off it's highs very strongly. I closed my long position early this morning when I recognised the strong diversion on this hourly chart, which I've indicated between the price and MACD. You'll see from my screen shot that my MA30 time seriesl crossed above my MA 50, and with my MA100 time series highest, this was signal to sell the euro this morning. I'll take profit at 132.48 if it gets there, which is the support level 3 pivot, just above the 4 hourly 200ema/sma.
http://uk.mg40.mail.yahoo.com/ya/dow...d=YahooMailNeo




This just gives a snap shot of how I trade and a few of the things I look for. Trading is never an exact art, but it is possible to move with the odds in your favor if you understand the technical picture to the best of your ability.

Here are the two links to my charts posted above, which should now open

http://uk.mg40.mail.yahoo.com/ya/dow...d=YahooMailNeo

http://uk.mg40.mail.yahoo.com/ya/dow...d=YahooMailNeo

Nope ;-))

Nope, those are links to your email account. Repost please?

fingers crossed!

Worked

Yeah, sussed it!

As I did my best to explain above, a fake in my understanding is an adverse price movement against the run of play, which is designed to take out stops. If anyone out there would like to explain just how and why this happens, I'd be most obliged, though it is obvious to me that big players cause these fakes and profit from them. Are there really unscrupulous and devious trading houses out there trying to profit by taking retail traders' money?

More fakey methods please. Isn't 1, 2, 3 a fakey method?

One of my favourite setups is the day after a news announcement which causes the trend to suddenly reverse. If you enter the day after in the original direction, the price will very quickly bounce back to the original level. To me these setups are virtually foolproof. Here is a good example of what I mean when the ECB cut interest rates earlier this month.

This is the basis for my laughable strategy:

http://www.forexfactory.com/showthre...16#post7114316

SSSSssshhhhh.... me too...

My example....